INVESTIGATING THE EFFECT OF INFLATION SHOCK ON THE ACTIVITY LEVEL OF INDUSTRIAL UNITS IN IRAN

Abstract

The industry is one of the most essential sectors affecting the economic development of national production of any country and has a significant impact on social, political, and economic relationship at home and abroad. As a result, attention to the development of the industry is a concern of planners in different societies. The primary purpose of this study was to investigate the effect of inflation shock on the activity level of industrial units through a Vector Error Correction Model (VECM) and using monthly time series data from April 2011 to April 2020 in Iran. For this purpose, the level of activity of industrial units was divided into three groups: the count of active industrial units, employment of active industrial units, and investment of active industrial units; the effect of inflation shock on each was estimated. An inflation shock from the first to the third period shows increasing and decreasing fluctuations in the activity of industrial units operating in Iran. From the third period onwards, this shock causes a stable decrease in the count of active industrial units in Iran; however, it causes a steady increase in employment in industrial units operating in Iran. Given the long-term relationship between the variables, if the inflation increases in the long run, the count of active industrial units will decrease, but the employment and investment of active industrial units will increase; these changes will be insignificant in the face of a one percent increase in inflation.