Main Determinants of Iran’s Real Exchange Rate, Through Using Auto Regressive Distributed Lag (ARDL) Approach

Authors

1 Ph.D. student of economics; Isfahan University

2 Professor of International Economics and University of Isfahan

Abstract

This study investigates the long-term effects of productivity, terms of trade, oil price and government expenditures on Iran’s real exchange rate using Iran’s and its major trade partners’ time series data over the period of 1980 to 2012. To analyze the impact of these variables on the real exchange rate, this research has used the Auto Regressive Distributed Lags (ARDL) method to estimate the parameters for the real exchange rate model. 
Based on the empirical results obtained, the long-term effect of relative productivity on real effective exchange rate has been statistically significant. The positive estimated value for the relative productivity coefficient in the model indicates a direct long-term relationship between relative productivity and effective real exchange rate, which holds the Balassa-Somuelson effect. The empirical results confirm the significant and expected effects of terms of trade, oil prices and government expenditures on Iran’s real effective exchange in the long run

Keywords

References

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