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Exchange Rate Policy of Iran

Hossein Tavakolian () and Ilnaz Ebrahimi
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Hossein Tavakolian : Monetary and Banking Research Institute (MBRI), Central Bank of the Islamic Republic of Iran (CBI)
Ilnaz Ebrahimi : Monetary and Banking Research Institute (MBRI), Central Bank of the Islamic Republic of Iran (CBI)

Journal of Money and Economy, 2012, vol. 6, issue 2, 51-68

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.

Keywords: exchange rate; foreign reserves; competitiveness; Markov switching (search for similar items in EconPapers)
JEL-codes: E52 E58 E61 E63 (search for similar items in EconPapers)
Date: 2012
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