Abstract
This paper reviews recent developments in the exchange system in the Islamic Republic of Iran and in the real effective exchange rate (REER). It also considers the determinants of the
REER in connection with the choice of exchange regime after unification. The study illustrates how economic policy variables and exogenous shocks affect the real exchange rate primarily through the fiscal balance, and consequently, the savings-investment gap. It further illustrates that the appropriate level of REER and its medium-term path depend upon the mix of monetary, fiscal, and structural policies that underpin the evolution of inflation, balance of payments, and productivity growth.
This is a Working Paper and the author(s) would welcome any comments on the present text. Citations should refer to a Working Paper of the International Monetary Fund. The views expressed are those of the author(s) and do not necessarily represent those of the Fund.
Published Date: January 1999
Keywords: Exchange rate unification, equilibrium exchange rate, exchange rate regime, Islamic Republic of Iran.
Authors’ E-Mail Addresses: vsundararajan@imforg; mlazare@imforg; swilliams@imf.org
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JAN
1999