Modeling the Inflation Effects of Budget Deficit and Banking Debt to the Central Bank in the Iranian Economy (System Dynamics Approach)

Inflation is one of the most important economic issues in the current century and in recent decades this phenomenon has been one of the economic problems of Iran. One of the theories that tries to interpret the phenomenon of inflation is the theory of some money. This theory states that the main cause of inflation is a disproportionate increase in the money supply in the economy. Thus, the present article models the impact of monetary base-oriented liquidity on inflation in the Iranian economy using the dynamics method of systems. After validating the model and ensuring its accuracy, scenarios have been designed and simulated to study the impact of liquidity on inflation. Observations from the implementation of the model showed that banks' debt to the central bank and the government budget deficit through increasing the monetary base has led to an increase in liquidity, which results in an increase in inflation in the Iranian economy. The results of the scenarios also indicated that by reducing the debt of banks to the central bank and reducing the budget deficit, the inflation rate in Iran can be reduced