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Empirical Characteristics of Inflation Uncertainty in Iran
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Mojtaba Rostami *1   , Gholamhassan Taghinataj malekshah2 , Mohammadmehdi Momenzade3 |
1- Assistant Prof, Department of Management, Kashan University
2- Associate Professor, Department of Accounting and Auditing, Faculty of Accounting and Financial Sciences, College of Management, University of Tehran
3- Ph.D. Candidate in Accounting, University of Tehran, Tehran, Iran. |
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Abstract: (152 Views) |
Inflation uncertainty is as important as the inflation rate. Even if all prices in the economy are flexible, a change in this variable has serious welfare loss consequences for risk-averse economic agents. Therefore, modeling and forecasting inflation uncertainty is of importance. The uncertainty of future price levels increases the risk for long-term contracts and increases the cost of hedging against inflation. Hence, in order to minimize the cost of hedging and the loss of wealth, it is important to be able to model and predict the behavior of inflation uncertainty as much as possible. For this purpose, in the current research, the monthly inflation data of Iran was used in the period from April 2011 to March 2024. In this paper, a Markov regime switching model has been used. Assuming linear behavior in economic processes can provide useful approximations of their actual time paths. However, the existence of changes in the macroeconomic environment obliges policymakers to use nonlinear models. Because ignoring breaks and significant changes will lead to serious mistakes. Correct inferences about the inflation regime are of vital importance for the implementation of monetary policies. Additionally, in order to provide an accurate estimate of unconditional inflation uncertainty, each regime is allowed to use a separate conditional distribution. The results show that the important factor in the increase and persistence of inflation uncertainty in Iran is not the persistence of regimes caused by external shocks such as sanctions, but the persistence within the regime due to the empirical characteristics of this variable and economic policies. Also, further investigations in this research show that people have less expectation errors in the regime with low inflation Volatility. |
Article number: 2 |
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Full-Text [PDF 933 kb]
(77 Downloads)
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Type of Study: Empirical Study |
Subject:
Prices, Business Fluctuations, and Cycles (E3)
Received: 2024/08/12 | Accepted: 2024/12/10 | Published: 2025/01/19
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