Alireza Rahimi Boroujerdi
Volume 2, 4&5(Spring and Summer) , April 2000, , Pages 5-40
Abstract
According to the theory of macroeconomics, achieving stable equilibrium in economy is possible when exchange rate regimes are consistent with the financial and monetary policies. Besides, regulating the real rate of exchange and its relation to a known exchange rate regime, which corresponds to economic ...
Read More
According to the theory of macroeconomics, achieving stable equilibrium in economy is possible when exchange rate regimes are consistent with the financial and monetary policies. Besides, regulating the real rate of exchange and its relation to a known exchange rate regime, which corresponds to economic conditions, is very important to create the equilibrium This study tries to forecast an exchange rate which can guarantee the growth of non-oil exports, by emphasizing on making exchange rate regime consistent with the exchange rate on the one hand and making financial and monetary policies harmonious with devaluation of Rial on the other hand. To this end, we have employed a VAR model to determine an appropriate exchange rate to forecast the behavior of exchange rate and other related variables over 1996-2000 (1375-79) period. In this framework, a model is worked out to can simultaneously specify the effects of financial policies, liquidity growth, inflation, and devaluation of Rial on non-oil exports within a five-year period. For this purpose, a model is presented with five endogenous and four exogenous variables.
The results show that an increase in inflation cancels out the positive effects of devaluation on non-oil exports. Rial devaluation will boost the growth of non-oil exports if it is accompanied by appropriate financial policies. Therefore, if the control of government expenditures is hinged with the devaluation of Rial, it may lead to a reduction in the growth of liquidity and inflation as well as to the growth of non-oil exports.
