Inflation has been the focus of numerous studies in the recent decades, both for
developing and under developing countries. Although there is a general
understanding about the consequences of inflation, its causes and cures are still controversial issues amongst economists. This study considers much empirical evidence and indicates the shortcomings of the other studies.
We have used data nom 1960 to 2001. Three econometric methods, such as Engle& Granger, Auto Regressive Distributed Lag (ARDL)' and Johanson
Joselious co integration test - have been used to examine the long run relationship between inflation rate and monetary policies. Our results indicate that a 10 percent
increase in the monetary growth leads to a 3 percent increase in inflation rate. Hence
the hypothesis of monetary inflation is not accepted in Iran's economy, while out
put, import price index and exchange rate are of the most important in influencing
inflation rate in Iran. Our results also nom VDCF and IRF methods show that money in Iran's economy is endogenous and therefore monetary authorities do not
have any control on it. Finally it was resulted that since inflationary effects of money
growth certainly last in more than a period, using active monetary policies is not recommended.
JEL Classification: F31, P24.