Analysing the asymmetric effects of inflation on real investment: the case of Iran

Using a threshold regression model and annual data (1960-2008), this paper examines thedeterminants of investment in Iran. We found that real GDP, the trade openness indexand inflation can influence investment. However, the effect of inflation on investmentfollows an asymmetry adjustment process. The threshold value for the rate of inflationhas endogenously been estimated to be at 11.9 per cent. If the annual rate of inflationexceeds this threshold, it will have a negative impact on investment. But, if inflationremains below this rate, not only the negative effect fades away but also rising prices canboost investment.