This paper surveys the effects of money growth and economic growth on inflation in Iran. We use Threshold Vector Error Correction Model (TVECM) for two sets of bivariate series inflation-money growth and inflation-economic growth separately and estimate the parameters of TVECMs by quantitative econometric software R 3.1.0. The estimation results based on the sample of data 1990:Q1 to 2013:Q4 show the long-run equation with threshold value 0.028 for bivariate series inflation-money growth. In the short-run, money growth has no effect on the inflation rate if economy switches to the low-inflation regime (the quarterly inflation rate being less than 2.8 percent) but it has significant positive impact on inflation at high-inflation regime Estimated threshold value for bivariate series inflation-economic growth is 0.073 and the high inflation rate above this threshold value, in contrast to low inflation rate, has positive effects on economic growth in the short-run. The obtained results support the view that inflation rate dynamics may be different when economy switch to the different inflation regime.
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