The Impacts of Oil Price and Selected Macroeconomic Variables on Consumer Price Index in IRAN (1971-2010)

Abstract

This study investigates the impact of oil price fluctuations and selected macroeconomic variables on the consumer price index of the Iranian economy. Time series data are used for the period 1971 to 2010. This study applied the Johansen-Juselius cointegration procedure, the FMOLS estimation technique, the Granger causality tests based on the VECM, and carried out analysis for detecting any multicollinearity problem among the regressors. The variables in the model are cointegrated, indicating the existence of long-run relationships among them. The oil price seems to have a negative and statistically insignificant relationship with the consumer price index, contrary to some other studies that found a positive relationship between the two variables. The exchange rate coefficient in the model is positive. This study also found positive long-run relationships between the CPI and GDP, money supply, interest rate and sanctions.

Key Words: Macroeconomic variable, oil price, inflation, VAR Model, Iranian economy