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International Monetary Fund. Middle East and Central Asia Dept.
This Selected Issues paper on Iran focuses on the Targeted Subsidy Reform Law (TSRL). This is the basic law governing the implementation of the subsidy reform in Iran. The TSRL envisaged bringing subsidized prices close to international levels over a five-year period. The paper reviews the implementation of the first phase of the subsidy reform, with a particular emphasis on macroeconomic management. The sharp depreciation of the exchange rate and high inflation significantly undermined progress under the reform. High inflation partially reversed the relative price change under the reform.
International Monetary Fund. Middle East and Central Asia Dept.

the cross-country comparison in the introduction, that Iran was unable to contain inflation variability. The inverse of the aggregate supply curve γ suggests that the output costs of disinflation could be small . The impulse response functions of a vector autoregression yield an estimate of γ =0.78, which is in the bottom quintile of the estimates in Cecchetti and Ehrman (2002) . A low gamma implies a steep aggregate supply curve, which in turn means that output is not very sensitive to changes in prices. Differently, the inflation/output variability frontier is