Document Type : Original Article

Authors

• Kiomars Sohaili ¹
• Kosar Moradi ²
• shahram Fatahi ³

¹ Professor/ Department of Economics/ Faculty of Economics and Accounting/ Razi University/ Kermanshah/ Iran

² Department of Economics, Faculty of Economics and Accounting, Razi University, Kermanshah, Iran

³ Associate Professor, Department of Economics, Faculty of Economics and Accounting, Razi University, Kermanshah, Iran

Abstract

The monetary base, as one o the main instruments of monetary poli, plays vital role in regulating liquidity and controlling inflation. Its main components include banknotes and coins in circulation andcommercial banks' reserves with the central bank.These components, by directly affecting liquidity, affect the general level ofprices and economic stability.Inflation, whichmeans a continuous and general increase in prices, is significantly dependent on the management of the monetary base.Effective policies in this area can play a role in maintaining economic balance.This study examines the short-term and long-term effects of the components of the monetary base on inflation in Iran during the years 1370 to 1402 using the autoregressive distribution lag (ARDL) model. The results indicate that in the short-term, banknotes and coins in circulation have a significant and reducing effect on inflation, but banks' reserves with the central bank and GDP do not have a significant effect. In the long run, both banknotes and bank reserves have a significant and decreasing effect on inflation, while GDP has changed from a non-significant effect to a positive and significant effect. These results point to the importance of proper management of the monetary base and economic growth in controlling inflation and creating economic stability.

Keywords

• Inflation
• Reserves of Commercial Banks
• Currency in circulation
• ARDL
• Model

Main Subjects

• Inflation and Liquidity