Economic Strategy

Economic Strategy

Inflation and Relative Price Variability in Iran: A Regime-Dependent Analysis of the Sanctions Era

Document Type : Original Article

Authors
hadi ghafari 1
Mohsen Mehrara 2
seyed hosein izadi 1
Bahram Nazari 3
1 Professor of Economics, Payame Noor University, Tehran, Iran
2 Professor of Economics, University of Tehran, Tehran, Iran.
3 PhD student in Economics, Payame Noor University, Tehran, Iran.
10.22034/es.2026.538367.1877
Abstract
This paper investigates the relationship between inflation and relative price variability (RPV) in Iran over the period 2004–2022, during which the country faced various international sanctions and multiple inflationary regimes. Four inflationary regimes were identified based on the nature of the sanctions: moderate inflation (political), high and unstable inflation (economic),mild and stable inflation (JCPOA period), and very high and volatile inflation (maximum pressure).Using five regression models estimated with ordinary least squares across the full period and subperiods, results indicate that inflation particularly at high levels is not neutral. The overall inflation rate, its volatility, and expected and unexpected components emerge as the main determinants of RPV. Their effects are weak under stable, mild inflation but become pronounced during high and unstable periods. Differences between full-period and subperiod results confirm structural breaks in the economy and suggest that explaining RPV through the “menu cost” and “signal extraction” frameworks is only feasible in high-inflation regimes. These findings highlight the crucial role of inflation dynamics in shaping relative price adjustments and economic decision-making in Iran.
Keywords
Inflation
Relative Price Variability
Sanctions
Iran
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  • Receive Date 03 August 2025
  • Revise Date 23 September 2025
  • Accept Date 27 September 2025