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The Effects of Real Exchange Rate on Economic Growth in Iran: New Findings with Non-Linear Approach

Author

Listed:
  • Motahari, Moheb Alah

    (Ph.D. Student in Economics, Ferdowsi University of Mashhad)

  • Lotfalipour , Mohammad Reza

    (Professor of Economics, Ferdowsi University of Mashhad)

  • Ahmadai Shadmehri, Mohammad Taher

    (Associate Professor of Economics, Ferdowsi University of Mashhad)

Abstract

Exchange rate is one of the most important macroeconomic variables that affects on many other economic variables. Because of importance the exchange rate, determining the exchange rate has been one of the most challenges of exchange policy in Iranian economy. The goal of this article is to investigate real exchange rate how affects on economic growth in Iran during 1975-2015. For do it, by using Markov Switching method and non-linear specification of real exchange rate, threshold value of real exchange rate has been calculated, so that when the real exchange rate is less than the threshold level, there is a significant positive relationship between real exchange rate and economic growth but after this threshold value and staying in high real exchange rate regime, there is a significant negative relationship between real exchange rate and economic growth. The threshold value of real exchange rate estimated about 14000 Rials. In the estimated growth model, other effective factors on economic growth are the growth of physical capital and the first lag of economic growth.

Suggested Citation

  • Motahari, Moheb Alah & Lotfalipour , Mohammad Reza & Ahmadai Shadmehri, Mohammad Taher, 2018. "The Effects of Real Exchange Rate on Economic Growth in Iran: New Findings with Non-Linear Approach," Quarterly Journal of Applied Theories of Economics, Faculty of Economics, Management and Business, University of Tabriz, vol. 4(4), pages 175-198, March.
    • Handle: RePEc:ris:qjatoe:0094
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    Citations

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    Cited by:

    1. Zarei, Samira, 2019. "How do Real Exchange Rate Movements Affect the Economic Growth in Iran?," MPRA Paper 99102, University Library of Munich, Germany.
    2. Zarei, Samira, 2020. "Analyzing the Asymmetric Effects of Inflation and Exchange Rate Misalignments on the Petrochemical Stock index: The Case of Iran," MPRA Paper 99101, University Library of Munich, Germany.

    More about this item

    Keywords

    Real exchange rate; Economic growth; Threshold exchange rate; Markov switching method.;
    All these keywords.

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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