Estimating the Impact of Monetary Base Uses on Inflation in the Short and Long Run in Iran

Document Type : Extracted from a Master's Thesis

Authors

1 M.A in Economics, Department of Economics, Faculty of Economics and Accounting, Razi University, Kermanshah, Iran

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

Abstract

The monetary base, as a key instrument of monetary policy, plays a central role in regulating liquidity and controlling inflation. Its main components—currency in circulation and commercial banks’ reserves with the central bank—directly influence liquidity, thereby shaping the overall price level and economic stability. Inflation, defined as a sustained and general increase in prices, is strongly dependent on the effective management of the monetary base. Well-designed policies in this area are therefore essential for maintaining economic balance. This study investigates the short- and long-term effects of the components of the monetary base on inflation in Iran from 1991 to 2023, using the Autoregressive Distributed Lag (ARDL) model. The findings show that in the short term, currency in circulation significantly reduces inflation, while banks’ reserves at the central bank and GDP have no significant impact. In the long term, both currency in circulation and bank reserves exert significant negative effects on inflation, whereas GDP shifts from being insignificant to exerting a significant positive effect. These results underscore the importance of sound monetary base management and sustainable economic growth in controlling inflation and ensuring macroeconomic stability.

Keywords

Main Subjects

References

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Economic Policies and Research
Volume 4, Issue 3 - Serial Number 15
October 2025
Pages 135-170

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