Common Trends and Structural Change: A Dynamic Macro Model for the Pre- and Postrevolution Islamic Republic of Iran

Torbjorn Becker

No 1999/082, IMF Working Papers from International Monetary Fund

Abstract: This paper uses a common trends model to study how prices, the black market exchange rate, money, and real output have developed over a period covering both pre- and post-revolution Iranian data. It is shown that monetary shocks have significant short-run effects on output, but permanent effects on the price level and exchange rate, that is, expansionary monetary policy is not consistent with achieving low inflation or a stable unified exchange rate. The real shocks generate higher growth and lower inflation, suggesting that supply-side policies are consistent with the goals in the Islamic Republic of Iran’s second five-year development plan.

Keywords: WP; money demand; nominal exchange rate; demand shock; output; inflation; exchange rate; real and nominal shocks; cointegration; integrating vector; time series; money demand function; inflation rate; Exchange rates; Purchasing power parity; Demand for money (search for similar items in EconPapers)
Pages: 30
Date: 1999-06-01
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Citations: View citations in EconPapers (10)

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