IDEAS home Printed from https://ideas.repec.org/a/eut/journl/v11y2006i1p39.html
   My bibliography  Save this article

Analyzing Exchange Rate Misalignment in Iran Based on Structural VAR Approach

Author

Listed:
  • Mohsen Mehrara

    (Assistant Professor, Faculty of Economics, University of Tehran)

Abstract

A central problem in empirical macroeconomics is to determine when and how much the exchange rate is misaligned. This paper clarifies and calculates the concept of the equilibrium real exchange rate, using a structural vector auto regression (VAR) model. By imposing long-run restrictions on a VAR model for Iran, four structural shocks are identified: nominal demand, real demand, supply and oil price shocks. The identified shocks and their impulse responses are consistent with an open economy model of economic fluctuations and highlight the role of the exchange rate in transmission mechanism of an oil-exporting country. Nominal and fiscal shocks appear to have important impact on output and the real exchange rate, even in the short run.

Suggested Citation

  • Mohsen Mehrara, 2006. "Analyzing Exchange Rate Misalignment in Iran Based on Structural VAR Approach," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 11(1), pages 39-58, winter.
  • Handle: RePEc:eut:journl:v:11:y:2006:i:1:p:39
    as

    Download full text from publisher

    File URL: ftp://80.66.179.253/eut/journl/20061-2.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
    2. Clarida, Richard & Gali, Jordi, 1994. "Sources of real exchange-rate fluctuations: How important are nominal shocks?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 41(1), pages 1-56, December.
    3. Mr. Peter Isard & Mr. Hamid Faruqee, 1998. "Exchange Rate Assessment: Extension of the Macroeconomic Balance Approach," IMF Occasional Papers 1998/012, International Monetary Fund.
    4. G. M. Grossman & K. Rogoff (ed.), 1995. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 3, number 3.
    5. Holmes, Mark J., 2001. "New Evidence on Real Exchange Rate Stationarity and Purchasing Power Parity in Less Developed Countries," Journal of Macroeconomics, Elsevier, vol. 23(4), pages 601-614, October.
    6. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
    7. Hoffmaister, Alexander W. & Roldos, Jorge E., 2001. "The Sources of Macroeconomic Fluctuations in Developing Countries: Brazil and Korea," Journal of Macroeconomics, Elsevier, vol. 23(2), pages 213-239, April.
    8. Hilde C. Bjørnland, 1998. "Economic Fluctuations in a Small Open Economy - Real versus Nominal Shocks," Discussion Papers 215, Statistics Norway, Research Department.
    Full references (including those not matched with items on IDEAS)

    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. Hilde Bjørnland, 2004. "Estimating the equilibrium real exchange rate in Venezuela," Economics Bulletin, AccessEcon, vol. 6(6), pages 1-8.
    2. Lucio Sarno & Mark P. Taylor, 2002. "Purchasing Power Parity and the Real Exchange Rate," IMF Staff Papers, Palgrave Macmillan, vol. 49(1), pages 1-5.
    3. Rebecca L Driver & Peter F Westaway, 2005. "Concepts of equilibrium exchange rates," Bank of England working papers 248, Bank of England.
    4. Sfia, Mohamed Daly, 2006. "Tunisia: Sources Of Real Exchange Rate Fluctuations," MPRA Paper 3129, University Library of Munich, Germany.
    5. Huang, Ying & Guo, Feng, 2007. "The role of oil price shocks on China's real exchange rate," China Economic Review, Elsevier, vol. 18(4), pages 403-416.
    6. Wee Chian Koh, 2018. "Sources Of Macroeconomic Fluctuations In Brunei Darussalam," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 63(05), pages 1285-1306, December.
    7. Hoffmann, M. & MacDonald, R., 2001. "A real differential view of equilibrium real exchange rate," Discussion Paper Series In Economics And Econometrics 0103, Economics Division, School of Social Sciences, University of Southampton.
    8. Rogers, John H., 1999. "Monetary shocks and real exchange rates," Journal of International Economics, Elsevier, vol. 49(2), pages 269-288, December.
    9. Kiptui, Moses, 2015. "Sources of Exchange Rate Fluctuations in Kenya: The Relative Importance of Real and Nominal Shocks," MPRA Paper 61515, University Library of Munich, Germany.
    10. Zhang, Yin & Wan, Guanghua, 2007. "What accounts for China's trade balance dynamics?," Journal of Policy Modeling, Elsevier, vol. 29(6), pages 821-837.
    11. John H. Rogers, 1995. "Real shocks and real exchange rates in really long-term data," International Finance Discussion Papers 493, Board of Governors of the Federal Reserve System (U.S.).
    12. Korhonen, Iikka & Mehrotra, Aaron, 2009. "Real exchange rate, output and oil: case of four large energy producers," BOFIT Discussion Papers 6/2009, Bank of Finland Institute for Emerging Economies (BOFIT).
    13. Farrant, Katie & Peersman, Gert, 2006. "Is the Exchange Rate a Shock Absorber or a Source of Shocks? New Empirical Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 939-961, June.
    14. Alan M. Taylor & Mark P. Taylor, 2004. "The Purchasing Power Parity Debate," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 135-158, Fall.
    15. Maurice Obstfeld, 1995. "Intenational Currency Experience: New Lessons and Lessons Relearned," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 119-220.
    16. Brigitte Desroches, 2004. "The Transmission of World Shocks to Emerging-Market Countries: An Empirical Analysis," Staff Working Papers 04-44, Bank of Canada.
    17. Bjørnland, Hilde C., 2009. "Monetary policy and exchange rate overshooting: Dornbusch was right after all," Journal of International Economics, Elsevier, vol. 79(1), pages 64-77, September.
    18. Muhammad Nasir & Wasim Malik, 2011. "Structural Decomposition of Exchange Rate Shocks in Pakistan: An Empirical Investigation using SVAR Methodology," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 18(1), pages 124-138, September.
    19. Kempa, Bernd, 2005. "An oversimplified inquiry into the sources of exchange rate variability," Economic Modelling, Elsevier, vol. 22(3), pages 439-458, May.
    20. Roland Crairmonte Craigwell & Winston Ricardo Moore & Kim Coppin, 2005. "Financial Innovation and Efficiency in the Barbadian Banking Industry," Money Affairs, CEMLA, vol. 0(2), pages 83-100, July-Dece.

    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:eut:journl:v:11:y:2006:i:1:p:39. 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: [z.rahimalipour] (email available below). General contact details of provider: https://edirc.repec.org/data/fecutir.html .

    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.