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 the determinants of investment in Iran. We found that real GDP, the trade openness index and inflation can influence investment. However, the effect of inflation on investment follows an asymmetry adjustment process. The threshold value for the rate of inflation has endogenously been estimated to be at 11.9 per cent. If the annual rate of inflation exceeds this threshold, it will have a negative impact on investment. But, if inflation remains below this rate, not only the negative effect fades away but also rising prices can boost investment.