Real Exchange Rate Misalignment and Inflation in Iran: New Evidence from Markov-Switching approach

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EHSANI MOHAMMAD ALI; Taheri Bazkhaneh Saleh; Lal e Khezri Hamid

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Journal: IRANIAN JOURNAL OF APPLIED ECONOMICS Year:2018 | Volume:7 | Issue:23 Page(s): 1-12

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Title

Real Exchange Rate Misalignment and Inflation in Iran: New Evidence from Markov-Switching approach

Author(s)

EHSANI MOHAMMAD ALI | Taheri Bazkhaneh Saleh | Lal e Khezri Hamid | Issue Writer Certificate

Keywords

Exchange Rate MisalignmentQ2

Exchange Rate Pass-throughQ1

InflationQ2

Markov-Switching ApproachQ1

Abstract

Real Exchange Rate Misalignment from its equilibrium value real is one of the controversial issues in the Iran's economy. On the one hand, by challenging the theory of purchasing power parity, the idea that the government should avoid reduce the real value of the rial and prevent transmission of exchange rate to Inflation. On the other hand the damage of real Exchange Rate Misalignment on domestic production, exports, employment, makes it as a phenomenon undesirable to be remembered. In this regard, this study is the idea that the distorting effects of the exchange rate will depend on Inflationary environment, non-linear effect of Exchange Rate Misalignment on Inflation in the period 1393: 4-1360: 2 investigated. The results of the estimation model presented by Atif Ali Jeffrey (2010) by Markov-Switching Approach shows that when Inflation is high and the average experience strong fluctuations, Exchange Rate Misalignment very little negative impact on Inflation. But as long as the average phase is low and less volatility, increase in the Exchange Rate Misalignment will cause Inflationary pressure. So, not only excessive valuation of the exchange rate when Inflation is increasing and a significant favorable impact on Inflation did not. So, not only excessive valuation of the exchange rate when Inflation is increasingly favorable effects on Inflation are not significant, but also it is serious threat to stability and reducing Inflation. The results of this study provide important policy implications.

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APA: Copy

EHSANI, MOHAMMAD ALI, Taheri Bazkhaneh, Saleh, & Lal e Khezri, Hamid. (2018). Real Exchange Rate Misalignment and Inflation in Iran: New Evidence from Markov-Switching approach. IRANIAN JOURNAL OF APPLIED ECONOMICS, 7(23 ), 1-12. SID. https://sid.ir/paper/202073/en

Vancouver: Copy

EHSANI MOHAMMAD ALI, Taheri Bazkhaneh Saleh, Lal e Khezri Hamid. Real Exchange Rate Misalignment and Inflation in Iran: New Evidence from Markov-Switching approach. IRANIAN JOURNAL OF APPLIED ECONOMICS[Internet]. 2018;7(23 ):1-12. Available from: https://sid.ir/paper/202073/en

IEEE: Copy

MOHAMMAD ALI EHSANI, Saleh Taheri Bazkhaneh, and Hamid Lal e Khezri, “Real Exchange Rate Misalignment and Inflation in Iran: New Evidence from Markov-Switching approach,” IRANIAN JOURNAL OF APPLIED ECONOMICS, vol. 7, no. 23 , pp. 1–12, 2018, [Online]. Available: https://sid.ir/paper/202073/en

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