Economic Growth, Inflation and Wage Growth: Experience from a Developing Country

Abstract

The Iranian economy has been subject to a number of critical events over the past five decades including the 1979 revolution, the eight-year war with Iraq, volatility in global oil prices, and the 1993 balance of payment crisis. These events plus government controls of the major parts of the economy have substantially changed the behavior of the macroeconomic variables. This research tries to examine the behavior of the key macroeconomic variables including economic growth, inflation and wage growth over the period 1959-2007. Based on the estimated multi equation model and applying the three scenarios, the economic growth is predicted to oscillate between 3.28% and 6.98%. Furthermore, it is forecasted that the inflation rate and the wage growth rate will be increased.