INFLATION- GROWTH NEXUS IN IRAN: INTRODUCING AND APPLYING THE GMDH CAUSALITY TEST

The relationship between economic growth and inflation is one of macroeconomic topics which despite several empirical and theoretical studies, still remains controversial. Considering the nonlinear essence of this relationship which most current studies verini, this paper on the basis of GMDH neural networks and underlying notion of Granger causality test proposes a new causality test for identifying the cause and effect in inflation-growth nexus. As an empirical application, this test is used to study the inflation-growth nexus in Islamic Republic of Iran. Our test identifies change in price level as a nonlinear GMDH cause of economic output which is in line with our theoretical expectations. But in the opposite direction, we cannot conclude that economic growth is a nonlinear GMDH cause of inflation which highlights the role of other variables - possibly monetaly ones.