ESTIMATION OF THE LONG RUN RELATIONSHIP BETWEEN NOMINAL INTEREST RATES AND INFLATION RATE IN IRAN

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KOMIJANI AKBAR; BAHRAMI RAD D.

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Journal: Journal of Economic Research Year:2008 | Volume:- | Issue:82 Page(s): 187-210

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Information Journal Paper

Title

ESTIMATION OF THE LONG RUN RELATIONSHIP BETWEEN NOMINAL INTEREST RATES AND INFLATION RATE IN IRAN

Author(s)

KOMIJANI AKBAR | BAHRAMI RAD D. | Issue Writer Certificate

Keywords

CAUSALITY TESTQ3

COINTEGRATIONQ3

FISHER EFFECTQ3

INFLATION RATEQ3

NOMINAL INTEREST (PROFIT) RATEQ3

REAL INTEREST (PROFIT) RATEQ3

Abstract

The Bank Profit Rates Reduction Law is enacted and put into action, while the main rationale of its designers is that putting this law into action will result in lower INFLATION RATE. On the other hand, the critics of this law believe that the main condition for reducing bank profit rates is the reduction of INFLATION RATE and hence adjusting inflationary expectations which will provide reduction in profit rates. Implicit assumption under the critics' rationale is the veracity of "fisher effect" theory referred to "Irving Fisher". According to this theory, in the long run, a reduction in INFLATION RATE will result in a reduction in nominal profit rates. The main purpose of the this article is to examine two hypotheses of research, and test the veracity of this rationale that in the long run, the lower INFLATION RATE is the reason of parallel decline in nominal profit rates. This research is faced with the limitation of appropriate data for nominal profit rates in Iran. As a result, in order to reach this goal, "Johansen" Co integration test and "Granger” CAUSALITY TEST are used in five scenarios with different substitutive variables for nominal profit rates. The results confirm the hypotheses of research and illustrate that in case of Iran's economy like many other developed or under- developing countries, long run changes in nominal profit rates can be explained by changes in INFLATION RATE. Finally, according to these results, appropriate policy implications are proposed in response to research questions.

Cites

DETERMINATION OF INTEREST RATE IN IRAN BY USING FUZZY LOGIC METHOD

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APA: Copy

KOMIJANI, AKBAR, & BAHRAMI RAD, D.. (2008). ESTIMATION OF THE LONG RUN RELATIONSHIP BETWEEN NOMINAL INTEREST RATES AND INFLATION RATE IN IRAN. TAHGHIGHAT-E-EGHTESADI, -(82), 187-210. SID. https://sid.ir/paper/11576/en

Vancouver: Copy

KOMIJANI AKBAR, BAHRAMI RAD D.. ESTIMATION OF THE LONG RUN RELATIONSHIP BETWEEN NOMINAL INTEREST RATES AND INFLATION RATE IN IRAN. TAHGHIGHAT-E-EGHTESADI[Internet]. 2008;-(82):187-210. Available from: https://sid.ir/paper/11576/en

IEEE: Copy

AKBAR KOMIJANI, and D. BAHRAMI RAD, “ESTIMATION OF THE LONG RUN RELATIONSHIP BETWEEN NOMINAL INTEREST RATES AND INFLATION RATE IN IRAN,” TAHGHIGHAT-E-EGHTESADI, vol. -, no. 82, pp. 187–210, 2008, [Online]. Available: https://sid.ir/paper/11576/en

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