Exchange Rate Fluctuations and Output in Oil-Producing Countries: The Case of Iran

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Author/Editor: Mohsen Bahmani-Oskooee, Magda E. Kandil
Release Date: © May, 2007
ISBN : 978-1-45186-677-3
Stock #: WPIEA2007113
English
Stock Status: Available

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Description

Conventional wisdom states that currency depreciation in oil-producing countries are contractionary because demand effects, limited by the prevalence of oil exports priced in dollars, are more than offset by adverse supply effects. Iran, however, has experienced a rapid increase in non-oil exports in the last decade. Against this background, the paper tests whether the conventional wisdom still applies to Iran and concludes that the emergence of the non-oil export sector has made currency depreciation expansionary. The expansionary effect is particularly evident with respect to anticipated persistent depreciation in the long-run. Notwithstanding the varying effects of exchange rate fluctuations on the demand and supply sides of the economy, managing a flexible exchange rate gradually over time towards achieving stability in the real effective exchange rate may strike the necessary balance.

Taxonomy

Balance of trade , Exchange rate policy , Exports , Foreign exchange , Imports , International trade




More publications in this series: Working Papers


More publications by: Mohsen Bahmani-Oskooee ; Magda E. Kandil