Currency Substitution Theory, a New Chanel to Enter the Exchange Rate as the Monetary Transmission Mechanism

Sara Shahraki, Ahmad Sabahi, Mohammad Hossein Mahdavi Adeli and Mostafa Salimifar
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Sara Shahraki: Ferdowsi University of Mashhad, Iran
Ahmad Sabahi: Ferdowsi University of Mashhad, Iran
Mohammad Hossein Mahdavi Adeli: Ferdowsi University of Mashhad, Iran
Mostafa Salimifar: Ferdowsi University of Mashhad, Iran

Economic Analysis Working Papers (2002-2010). Atlantic Review of Economics (2011-2016), 2016, vol. 2, -

Abstract: This paper examines whether in analysis of the impact of monetary policy, the exchange rate can play a role along with the interest rate as a transmission mechanism of monetary policy effects on economic variables or not? For this purpose, the general dynamic stochastic equilibrium models were used in the form of a New Keynesian small open macro-economy. This model was designed for Iran's economy by considering oil-based economy's and the currency substitution Existence. Then, its calibration and simulation was conducted with Iran's economic data for the period of 1995-2011. The results from model validation, univariate and multivariate recognition of Markov Monte Carlo chain and analysis of the model impulse responses showed that in Iran's economy, the exchange rate plays a role along with the interest rate as a monetary transmission mechanism.

Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eac:articl:11/15

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