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The Decline of the Iranian Rial During the Post Revolutionary Period: A Productivity Approach

Mohsen Bahmani-Oskooee ()

No 9615, Working Papers from Economic Research Forum

Abstract: Since the advent of revolution in Iran, the Iranian rial has lost its nominal and real values by more than 40 times. What could explain this decline? In this paper, I identify the decline in relative productivity between Iran and her seven major trading partners as the major cause of the decline in the real rial. Engle-Granger cointegration and error-correction modeling along with Johansen-Juselius cointegration technique are used to establish the long-run relation between real exchange rates (seven) and differential productivity. Additionally, the empirical methodologies are supplemented with a graphic exposition to add more intuition to the analysis. Finally, several policy recommendations are outlined.

Date: 1996, Revised 1996
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