Asymmetrical effects of oil price on inflation in Iran (1990- 2022): an empirical analysis using the NARDL model

Abstract

Oil fluctuations play an important role in the design of macroeconomic dynamics, especially in oil exporting economies such as Iran. The study examines the asymmetrical effects of changes in oil prices on inflation in Iran from 1990 to 2022, which uses the nonlinear autoregressive distributed lag (NARDL) model. Economic growth is also included as an independent variable to reduce the effect of confounding variables. The results suggest that the decline in oil prices
significantly reduces inflation in the long term, while rising oil prices have no statistically significant impact. These findings suggest that decision makers should consider asymmetrical responses under inflation when preparing monetary and fiscal policies. Diagnostic checking including stability test confirm the results.