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Exchange Rate Fluctuations and Output in Oil-Producing Countries; The Case of Iran

Magda Kandil () and Mohsen Bahmani-Oskooee ()

No 07/113, IMF Working Papers from International Monetary Fund

Abstract: Conventional wisdom states that currency depreciation in oil-producing countries are contractionary because demand effects, limited by the prevalence of oil exports priced in dollars, are more than offset by adverse supply effects. Iran, however, has experienced a rapid increase in non-oil exports in the last decade. Against this background, the paper tests whether the conventional wisdom still applies to Iran and concludes that the emergence of the non-oil export sector has made currency depreciation expansionary. The expansionary effect is particularly evident with respect to anticipated persistent depreciation in the long-run. Notwithstanding the varying effects of exchange rate fluctuations on the demand and supply sides of the economy, managing a flexible exchange rate gradually over time towards achieving stability in the real effective exchange rate may strike the necessary balance.

Keywords: Currency depreciation; Exchange rate policy; Exchange rate instability; Exports; Imports; Oil exporting countries; Iran, Islamic Republic of; non-oil exports, imported inputs, exchange rate, oil exports, effective exchange rate, real effective exchange rate, (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-ene and nep-ifn
Date: 2007-05-01
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Journal Article: Exchange Rate Fluctuations and Output in Oil-Producing Countries: The Case of Iran (2010) Downloads
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