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Exchange Rate Policy of Iran

Author

Listed:
  • Tavakolian , Hossein

    (Monetary and Banking Research Institute (MBRI), Central Bank of the Islamic Republic of Iran (CBI))

  • Ebrahimi , Ilnaz

    (Monetary and Banking Research Institute (MBRI), Central Bank of the Islamic Republic of Iran (CBI))

Abstract

The exchange rate regime in Iran is practically fixed. The Central Bank of Iran (CBI) has committed itself to trying to bring about a particular exchange rate regime to meet two important targets: 1. Sustaining competitiveness of the economy, 2. Acquiring the share of foreign reserves in monetary base in a predetermined level. Since 2001 the share of foreign reserves in monetary base has increased, which suggests that the sensitivity of CBI toward its second target should have also increased. This study tries to test whether this hypothesis is statistically significant. A Markov Switching model is used to test this hypothesis. The results show that from 2001 the sensitivity of CBI toward its second target has increased significantly, while its sensitivity toward the first target has decreased.

Suggested Citation

  • 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.
    • Handle: RePEc:mbr:jmonec:v:6:y:2012:i:2:p:51-68
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    References listed on IDEAS

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    1. repec:bla:jecsur:v:13:y:1999:i:5:p:551-76 is not listed on IDEAS
    2. Bruce Hansen, 1999. "Testing for Linearity," Journal of Economic Surveys, Wiley Blackwell, vol. 13(5), pages 551-576, December.
    3. 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.
    4. Hansen,B.E., 1999. "Testing for linearity," Working papers 7, Wisconsin Madison - Social Systems.
    5. Oya Celasun, 2003. "Exchange Rate Regime Considerations in an Oil Economy: The Case of the Islamic Republic of Iran," IMF Working Papers 2003/026, International Monetary Fund.
    6. International Monetary Fund, 1999. "Exchange Rate Unification, the Equilibrium Real Exchange Rate, and Choice of Exchange Rate Regime: The Case of the Islamic Republic of Iran," IMF Working Papers 1999/015, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Khosravi, Mahdi & Mehrabi Boshrabadi , Hossein & Ahmadyan, Azam & Jalaei, Seyyed Abdolmajid, 2016. "How Do Agricultural Subsectors Respond to Productivity Shocks? Evidence from a Bayesian DSGE Model in Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 11(3), pages 305-330, July.
    2. Hossein Tavakolian & Hamed Ghiaie, 2019. "Optimal Inflation Targeting in a Dual-Exchange Rate Oil Economy," THEMA Working Papers 2019-09, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    3. Ghiaie, Hamed & Tabarraei, Hamid Reza & Tavakolian, Hossein, 2022. "Alternative monetary policy regimes in an oil-exporting economy," The Quarterly Review of Economics and Finance, Elsevier, vol. 83(C), pages 161-177.

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    More about this item

    Keywords

    exchange rate; foreign reserves; competitiveness; Markov switching;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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