IDEAS home Printed from https://ideas.repec.org/a/eme/jespps/v38y2011i2p186-202.html
   My bibliography  Save this article

How can Iran's black market exchange rate be managed?

Author

Listed:
  • Abbas Valadkhani
  • Majid Nameni

Abstract

Purpose - The Iranian currency (rial) depreciated on average 12.2 per cent per annum against the US dollar during the period 1960‐1998 but, despite continued two‐digit rates of inflation, the rial has witnessed only a meagre 1.7 per cent fall in its value in the post‐1998 era. This paper seeks to examine this perplexing issue by identifying the major long‐run determinants of the black market exchange rate. Design/methodology/approach - This paper uses the multivariate cointegration test, a threshold regression model and annual time series data (1960‐2008) to determine exactly at what exchange rate the effect of relative prices on the exchange rate has been subject to an asymmetry adjustment process. Findings - It was found that the relative CPIs in Iran and the USA, total stock of foreign debt and the price of crude oil are the major long‐run determinants of the black market exchange rate. However, the impact of relative prices (as measured by the magnitude of its elasticity) has significantly diminished from almost unity in the pre‐1998 period to less than one‐fourth since 1998. Based on the results, if oil prices continue to plunge, liquidity and inflation are out of control and at the same time Iran accumulates more external debt, the exchange rate will eventually exhibit an unprecedented and explosive depreciation in the coming years. Originality/value - No previous study has examined this issue using a threshold regression model without splitting the entire sample into two sections according to an endogenously determined threshold for the exchange rate.

Suggested Citation

  • Abbas Valadkhani & Majid Nameni, 2011. "How can Iran's black market exchange rate be managed?," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 38(2), pages 186-202, May.
    • Handle: RePEc:eme:jespps:v:38:y:2011:i:2:p:186-202
    DOI: 10.1108/01443581111128415
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/01443581111128415/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://www.emerald.com/insight/content/doi/10.1108/01443581111128415/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1108/01443581111128415?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    2. Mohsen Bahmani-Oskooee, 2005. "History of the Rial and Foreign Exchange Policy in Iran," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 10(2), pages 1-20, fall.
    3. Bahmani-Oskooee, Mohsen, 1996. "The black market exchange rate and demand for money in Iran," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 171-176.
    4. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    5. Enders, Walter & Siklos, Pierre L, 2001. "Cointegration and Threshold Adjustment," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(2), pages 166-176, April.
    6. Farzin, Y. H., 1995. "Foreign exchange reform in Iran: Badly designed, badly managed," World Development, Elsevier, vol. 23(6), pages 987-1001, June.
    7. Jalal U. Siddiki, 2000. "Black market exchange rates in India: an empirical analysis," Empirical Economics, Springer, vol. 25(2), pages 297-313.
    8. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    9. Mohsen Bahmani-Oskooee, 1996. "The Decline of the Iranian Rial During the Post Revolutionary Period: A Productivity Approach," Working Papers 9615, Economic Research Forum, revised 05 1996.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ahmad, Ahmad Hassan & Aworinde, Olalekan Bashir, 2016. "The role of structural breaks, nonlinearity and asymmetric adjustments in African bilateral real exchange rates," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 144-159.
    2. Tavakolian , Hossein & Ebrahimi , Ilnaz, 2012. "Exchange Rate Policy of Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 6(2), pages 51-68, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Abbas Valadkhani, 2003. "An Empirical Analysis Of The Black Market Exchange Rate In Iran," School of Economics and Finance Discussion Papers and Working Papers Series 144, School of Economics and Finance, Queensland University of Technology.
    2. Gómez-Puig, Marta & Sosvilla-Rivero, Simón, 2014. "Causality and contagion in EMU sovereign debt markets," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 12-27.
    3. Katsoulacos Yannis & Konstantakopoulou Ioanna & Metsiou Eleni & Tsionas Efthymios, 2014. "Quantitative Price Tests in Antitrust Market Definition with an Application to the Savory Snacks Markets," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 12(1), pages 1-33, January.
    4. Pär Österholm, 2005. "The Taylor Rule: A Spurious Regression?," Bulletin of Economic Research, Wiley Blackwell, vol. 57(3), pages 217-247, July.
    5. Boris Hofmann, 2003. "Bank Lending and Property Prices: Some International Evidence," Working Papers 222003, Hong Kong Institute for Monetary Research.
    6. Garg, Bhavesh & Prabheesh, K.P., 2021. "Testing the intertemporal sustainability of current account in the presence of endogenous structural breaks: Evidence from the top deficit countries," Economic Modelling, Elsevier, vol. 97(C), pages 365-379.
    7. Eleni Constantinou & Avo Kazandjian & Georgios P. Kouretas & Vera Tahmazian, 2008. "Common Stochastic Trends Among The Cyprus Stock Exchange And The Ase, Lse And Nyse," Bulletin of Economic Research, Wiley Blackwell, vol. 60(4), pages 327-349, October.
    8. Alessandro Piergallini & Michele Postigliola, 2012. "Fiscal Policy and Public Debt Dynamics in Italy, 1861-2009," Rivista italiana degli economisti, Società editrice il Mulino, issue 3, pages 417-440.
    9. Haruna Issahaku & Yazidu Uztarz & Paul Bata Domanban, 2013. "Macroeconomic Variables and Stock Market Returns in Ghana: Any Causal Link?," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(8), pages 1044-1062, August.
    10. Ahmed, Osama & Sallam, Walid, 2018. "Studying the volatility effect of agricultural exports on agriculture share of GDP: The case of Egypt," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 13(8), pages 345-352.
    11. Mighri, Zouheir & Ragoubi, Hanen & Sarwar, Suleman & Wang, Yihan, 2022. "Quantile Granger causality between US stock market indices and precious metal prices," Resources Policy, Elsevier, vol. 76(C).
    12. Tillmann, Peter, 2003. "Cointegration and Regime-Switching Risk Premia in the U.S. Term Structure of Interest Rates," Bonn Econ Discussion Papers 27/2003, University of Bonn, Bonn Graduate School of Economics (BGSE).
    13. Marco G. Ercolani & Zheng Wei, 2010. "An Empirical Analysis of the Lewis-Ranis-FEi Theory of Dualistic Economic Development for China," Discussion Papers 10-06, Department of Economics, University of Birmingham.
    14. Hernán Enríquez Sierra & Jacobo Campo Robledo & Antonio Avendaño Arosemena, 2015. "Relaciones regionales en los precios de vivienda nueva en Colombia," Revista Ecos de Economía, Universidad EAFIT, vol. 19(40), pages 25-47, June.
    15. repec:kap:iaecre:v:11:y:2005:i:2:p:149-162 is not listed on IDEAS
    16. Jonny Castro Tapias, 2014. "Crecimiento económico y capital humano: Un análisis de cointegración para Colombia en el periodo 1960 – 2012," Documentos de Trabajo 12418, Universidad Católica de Colombia.
    17. Walid M.A. Ahmed, 2012. "On the interdependence structure of market sector indices: the case of Qatar Exchange," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 11(4), pages 468-488, October.
    18. Erasmo Papagni & Amedeo Lepore & Emanuele Felice & Anna Laura Baraldi & Maria Rosaria Alfano, 2018. "Public Investment and Growth Accelerations: The Case of Southern Italy, 1951-1995," EERI Research Paper Series EERI RP 2018/10, Economics and Econometrics Research Institute (EERI), Brussels.
    19. Sari, Ramazan & Hammoudeh, Shawkat & Soytas, Ugur, 2010. "Dynamics of oil price, precious metal prices, and exchange rate," Energy Economics, Elsevier, vol. 32(2), pages 351-362, March.
    20. Gómez-Puig, Marta & Sosvilla-Rivero, Simón, 2013. "Granger-causality in peripheral EMU public debt markets: A dynamic approach," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4627-4649.
    21. A. Calza & C. Gartner & J. Sousa, 2003. "Modelling the demand for loans to the private sector in the euro area," Applied Economics, Taylor & Francis Journals, vol. 35(1), pages 107-117.

    More about this item

    Keywords

    Iran; Exchange rates; Economic sectors; Currencies;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F31 - International Economics - - International Finance - - - Foreign Exchange

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:jespps:v:38:y:2011:i:2:p:186-202. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.