Real effective exchange rate misalignment and currency crisis in Iran
Abstract This study aimed to examine real effective exchange rate (REER) misalignment in Iran and its relation to the currency crisis. The behavioral equilibrium exchange rate was employed to calculate the equilibrium exchange rate (EER), and misalignment was obtained using the exchange rate deviati...
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| Format: | Article |
| Language: | English |
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SpringerOpen
2023-02-01
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| Series: | Future Business Journal |
| Subjects: | |
| Online Access: | https://doi.org/10.1186/s43093-023-00182-8 |
| _version_ | 1811171714260795392 |
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| author | Mohammad Hassanzadeh Shahla Mousavi |
| author_facet | Mohammad Hassanzadeh Shahla Mousavi |
| author_sort | Mohammad Hassanzadeh |
| collection | DOAJ |
| description | Abstract This study aimed to examine real effective exchange rate (REER) misalignment in Iran and its relation to the currency crisis. The behavioral equilibrium exchange rate was employed to calculate the equilibrium exchange rate (EER), and misalignment was obtained using the exchange rate deviation from the equilibrium value. Using the autoregressive distributed lag (ARDL) method and data from 1986 to 2019, the long-run relationship between macroeconomic fundamentals and REER was estimated. The results show that trade openness, rate of productivity growth in tradable good production, net foreign assets of the central bank, oil exports, and terms of trade significantly affected the EER. Estimation of misalignment and its relationship with the currency crisis show that in the years before the crisis, there was generally a significant overvaluation in several consecutive years; hence, exchange rate misalignment serves as a leading index to predict the probability of a currency crisis. |
| first_indexed | 2024-04-10T17:18:36Z |
| format | Article |
| id | doaj.art-a35e2ca801d34eadaea98864223be19a |
| institution | Directory Open Access Journal |
| issn | 2314-7210 |
| language | English |
| last_indexed | 2024-04-10T17:18:36Z |
| publishDate | 2023-02-01 |
| publisher | SpringerOpen |
| record_format | Article |
| series | Future Business Journal |
| spelling | doaj.art-a35e2ca801d34eadaea98864223be19a2023-02-05T12:14:13ZengSpringerOpenFuture Business Journal2314-72102023-02-01911810.1186/s43093-023-00182-8Real effective exchange rate misalignment and currency crisis in IranMohammad Hassanzadeh0Shahla Mousavi1Faculty of Social Science, University of Mohaghegh ArdabiliFaculty of Social Science, University of Mohaghegh ArdabiliAbstract This study aimed to examine real effective exchange rate (REER) misalignment in Iran and its relation to the currency crisis. The behavioral equilibrium exchange rate was employed to calculate the equilibrium exchange rate (EER), and misalignment was obtained using the exchange rate deviation from the equilibrium value. Using the autoregressive distributed lag (ARDL) method and data from 1986 to 2019, the long-run relationship between macroeconomic fundamentals and REER was estimated. The results show that trade openness, rate of productivity growth in tradable good production, net foreign assets of the central bank, oil exports, and terms of trade significantly affected the EER. Estimation of misalignment and its relationship with the currency crisis show that in the years before the crisis, there was generally a significant overvaluation in several consecutive years; hence, exchange rate misalignment serves as a leading index to predict the probability of a currency crisis.https://doi.org/10.1186/s43093-023-00182-8Exchange rate misalignmentCurrency crisisAutoregressive distributed lag (ARDL) method |
| spellingShingle | Mohammad Hassanzadeh Shahla Mousavi Real effective exchange rate misalignment and currency crisis in Iran Future Business Journal Exchange rate misalignment Currency crisis Autoregressive distributed lag (ARDL) method |
| title | Real effective exchange rate misalignment and currency crisis in Iran |
| title_full | Real effective exchange rate misalignment and currency crisis in Iran |
| title_fullStr | Real effective exchange rate misalignment and currency crisis in Iran |
| title_full_unstemmed | Real effective exchange rate misalignment and currency crisis in Iran |
| title_short | Real effective exchange rate misalignment and currency crisis in Iran |
| title_sort | real effective exchange rate misalignment and currency crisis in iran |
| topic | Exchange rate misalignment Currency crisis Autoregressive distributed lag (ARDL) method |
| url | https://doi.org/10.1186/s43093-023-00182-8 |
| work_keys_str_mv | AT mohammadhassanzadeh realeffectiveexchangeratemisalignmentandcurrencycrisisiniran AT shahlamousavi realeffectiveexchangeratemisalignmentandcurrencycrisisiniran |