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

Moheb Alah Motahari (), Mohammad Reza Lotfalipour () and Mohammad Taher Ahmadai Shadmehri ()
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Moheb Alah Motahari: Ph.D. Student in Economics, Ferdowsi University of Mashhad
Mohammad Reza Lotfalipour: Professor of Economics, Ferdowsi University of Mashhad
Mohammad Taher Ahmadai Shadmehri: Associate Professor of Economics, Ferdowsi University of Mashhad

Quarterly Journal of Applied Theories of Economics, 2018, vol. 4, issue 4, 175-198

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.

Keywords: Real exchange rate; Economic growth; Threshold exchange rate; Markov switching method. (search for similar items in EconPapers)
JEL-codes: C50 F31 O24 O40 (search for similar items in EconPapers)
Date: 2018
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