The Causal Relationship Between Inflation and Inflation Uncertainty in Iran Under Structural Breaks
Keywords:
Causality test under structural breaks, Fourier approximation, Inflation uncertaintyAbstract
Given the double-digit inflation and various shocks—including economic sanctions and the COVID-19 pandemic—in Iran, the present study aims to investigate the causal relationship between inflation and inflation uncertainty during the period from April 2013 to September 2024 using econometric methods such as conditional variance modeling, the Autoregressive Distributed Lag (ARDL) cointegration test, and the Toda–Yamamoto causality test with Fourier approximation, which account for structural breaks. Accordingly, inflation uncertainty is first extracted from inflation data. After testing the stationarity of the inflation and inflation uncertainty variables, the cointegration relationship between them is examined. Subsequently, the causal relationship between inflation and inflation uncertainty is analyzed. The results indicate a unidirectional causal relationship from inflation to inflation uncertainty, consistent with the findings of Latan and Galag (2020) and Apergis et al. (2021). Therefore, considering that one of the critical challenges of Iran's economy is inflation—which exacerbates inflation uncertainty and influences economic decisions such as consumption, investment, and production—the importance of adopting economic stabilization policies aimed at reducing inflation is emphasized.
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Copyright (c) 2025 Mohammad Rezvani (Author); Mahdi Pendar; Elham Vafaei, Milad Atghaei (Author)
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