Vahid Rezaei, Mohammad Reza Lotfalipour, Seyed Saeed Malek Sadati, Narges Salehnia,
Volume 16, Issue 59 (5-2025)
Abstract
Inflation, as a key indicator of economic performance, directly affects household purchasing power, price stability, and the long-term planning of firms and governments. Uncontrolled inflation not only reduces public welfare and exacerbates social inequalities, but also disrupts investment and sustainable growth by creating instability in economic expectations. Therefore, identifying the drivers of inflation and understanding their transmission mechanisms is essential for designing effective monetary and fiscal policies. This study investigates the impact of economic shocks on the inflation rate by employing a combination of two approaches: first, the random forest-based variable selection method with recursive feature elimination (RF-RFE) to identify the most influential factors, and second, the Bayesian vector autoregression (BVAR) model to analyze the time dynamics and mutual interactions of these shocks.The dataset covers 42 economic variables from the first quarter of 2009 to the fourth quarter of 2021, grouped into seven categories: supply, demand, monetary and banking, taxation and budget, exchange rate, energy, and employment. In the first step, the RF-RFE method identified the most important determinants of consumer inflation. The results indicated that five key variables producer inflation, value added in the oil and gas sector, quasi-money, the market exchange rate, and banknotes and coins in circulation play a major role in explaining consumer price fluctuations.The subsequent BVAR analysis showed that shocks originating from producer inflation and the exchange rate exert strong short-term effects on consumer inflation. By contrast, variables such as oil and gas value added play a moderating role in the long term, gradually alleviating inflationary pressures. Furthermore, the variance decomposition of forecast errors suggests that, in the long run, exchange rate volatility and liquidity changes driven by quasi-money increasingly account for fluctuations in inflation
Vahid Rezaei, | Mohammad Reza Lotfalipour, Seyed Saeed Malek Sadati, Narges Salehnia,
Volume 16, Issue 60 (9-2026)
Abstract
The main objective of this study is to analyze the asymmetric effects of oil revenue shocks and the role of latent macroeconomic variables on the inflation of 12 major groups of consumer goods and services in the Iranian economy from 2009 to 2021. To this end, a Generalized Factor Augmented Vector Autoregression (FAVAR) model was employed, which facilitates the integration of extensive economic data and the extraction of latent nominal and real components.The findings indicate that the response of commodity group inflation to oil revenue shocks is inherently asymmetric. Positive oil revenue shocks trigger the Dutch Disease mechanism, leading to a rise in relative prices within non-tradable sectors such as healthcare, housing, and hospitality. Conversely, in the tradable goods sector, the temporary abundance of foreign exchange acts as a curb on price growth in the short term. On the other hand, negative oil revenue shocks exert severe inflationary pressure across all categories particularly import-dependent groups like food and transportation primarily through currency depreciation and structural budget deficits. Furthermore, the extracted latent components show a strong correlation with the nominal and real sectors; the first component (F1), representing the nominal sector, is the primary driver of inflation across most groups, while the second component (F2), representing the real sector (production and employment), plays a moderating role.
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