Inflation Dynamics of Iran Provinces: A Spatial Econometric Approach

Iran's provinces have experienced high inflationary pressures over the past few decades. This paper models the dynamics of inflation in terms of spatial effects between Iranian provinces using the hybrid Phillips New Keynesian Curve during the period (1392-1380). The results show that, the Phillips Keynesian curve is suitable for investigating the dynamics of inflation in Iran's provinces. Findings indicate that provinces focus on setting  prices of their goods based on a combination of forward looking  and backward looking rules, and that forward looking behaviors will have a stronger effect on the rate of inflation in the current period. Also in each province ,the output gap as representative of the actual variables has an effect on the inflation rate of its current period. Finally, considering the significance of spatial auto-correlation between Iran's provinces, output  gap, expected and lagged inflation rates in adjacent provinces have  negative effects on the current inflation rate of the neighboring provinces.