The Study of Inflation Main determinants by Emphasizing on Government Size

This paper is an effort to find an adaptable model to investigate about the presence or absence of significant relation between inflation and the size of government in Iran. To study the long-run relationship between inflation and the factors affecting it by emphasizing the size of government during 1974-2006, an auto regressive distributed lag model (ARDL) will be used.The findings indicate that the import price index, liquidity and real interest rate are effective factors on inflation in Iran and there is a negative but significant relationship between inflation and the size of government in Iranian economy. Based upon the results, the government protective and supervisional roles is necessary to control the inflation.