Empirical Analysis of Factors Affecting the Success of Inflation Targeting in Iran, Emphasizing the Transparency and Accountability of the Central Bank

Document Type : Scientific paper

Authors

1 پژوهشکده امور اقتصادی

2 Khatam University

Abstract

One of the main goals of monetary policy is price stability, and in this framework is one of the most successful approaches introduced in recent decades of inflation targeting. In this paper, factors influencing inflation targeting such as central bank independence and transparency, inflation uncertainty, Minimum nominal wages, monetary base, and exchange rate in Iran for the time period of 1978-2017 were investigated. First, we calculated the Central Bank independence by using the Principal Component Analysis (PCA) and then, we investigated the factors affecting inflation target. The results showed that central bank independence and transparency and commitment to accountability had a negative and significant effect on the inflation gap from the target inflation. Minimum nominal wages, monetary base, exchange rate, the uncertainty of inflation have a positive effect on the inflation gap of the target inflation. Therefore, in order to achieve the inflation target, the preconditions for the adoption of this monetary policy should be provided. Furthermore, since the exchange rate is one of the variables that influence the inflation rate and has a major impact on the inflation rate of the country, so having a trading and exchange rate policy can have many results on achieving inflation goals.

Keywords

References

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Macroeconomics Research Letter
Volume 13, Issue 26
November 2018
Pages 123-145

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History

  • Receive Date: 08 August 2018
  • Revise Date: 08 January 2019
  • Accept Date: 20 May 2019

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