Authors

• Reza Najarzadeh ¹
• Bahram Sahabi ¹
• Sirous Solaymani ²

¹ Assistant Professor of Economics, Faculty of Economics and Management, Tarbiat Modarres University

² Graduate Student in Economics, Tarbiat Modarres University

Abstract

In this study by using Markov Regime Heteroscedasticity method (MRSH) In the form of state-space model the relationship between inflation and uncertainty  of inflation in Iranian economics is examined. The period of the study is the first quarter of  1367 to the third quarter of 1389. The reaction between inflation and inflation uncertainty is dependent on whether the shocks are temporary or permanent. The MRSH model decomposes inflation to temporary and permanent and this makes the analysis of the relationship between inflation and inflation uncertainty possible in the long as well as short run. The results of the study show that increase in the long run  uncertainty leads to increase in long run inflation and increase in short run inflation leads to decrease in short term inflation rate. Furthermore, simultaneous effects of increase in short run and long run inflation uncertainty leads to increase in Iran's inflation  trend.
 

Keywords

• Inflation uncertainty
• Friedman-Ball paradigm
• Cukierman and Meltzer paradigm
• Holland paradigm
• State-Space Models
• Markov Regime Switching Models