Document Type : Research Paper
Authors
Faculty member of Isfahan University
Abstract
With the view of the shortcoming of purchasing power parity (PPP)approach in interpreting the behavior of LRER in many Developing Countries in last decades, new literature, emphasized on the role of fundamental variables in determination of LRER. These factors from both sides of the supply and demand of the economy structure, includes government fiscal policies, international financial assessment, changes in productivity growth, fluctuation of terms of trade and trade policies are the fundamental variables in this regard.
In the case of Iran, while some studies concentrate on determinants of LRER, some others which is in relation with PPP. Approach has concluded that results depend on the period of the study, the types of data and the approach of test.
In this study, total productivity of factors (TPF) of production, the ratio current expenditures to development expenditures used as an index of government fiscal policy, domestic terms of trade, ratio of Central Bank exchange reserves to the base money and an index of import-intensive of investment have taken into account as the determinants of the LRER in Iran. The long-run effects of these variables on the behavior of LRER have been determined by the use of economic methods and then have been analyzed.
In addition, with the attention to the structure of the exchange market in Iran, there have been at least five real exchange rates in the form of real effective formal exchange rate, real effective parallel exchange rate, real effective export exchange rate, real effective recievement exchange rate and real effective payment exchange rate which investigated respectively. Hence, variety of measures should be calculated and interpreted to permint crosschecks in the study. The research illustrate that the direction of the effects of each of these variables depend on which type of real exchange rate has been used. However, another result is that, in the short-run diseqilibrium in all of the cases of real exchange rate would be eliminated except that of parallel market, because of the role of expectation in this market.
Keywords
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