Studying Short-Run and Long-Run Relationship between Real Exchange Rate and Real GDP in Iran

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Firooz, Hamid | 2012

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Type of Document: M.Sc. Thesis
Language: Farsi
Document No: 43927 (44)
University: Sharif University of Technology
Department: Management and Economics
Advisor(s): Nili, Masoud
Abstract:
Exchange rate is one of the macroeconomic variables that can affect domestic product, economic growth and unemployment. Since macroeconomics wants to explain inflation, unemployment and economic growth, exchange rate is one of the most important macroeconomic variables. In economic literature, many studies have been performed to investigate the linkage between Real Exchange Rate (RER) and other real economic variables (such as domestic product, unemployment, etc.). In this study, we first construct the RER for the economy of Iran and then, using Vector Error Correction Model (VECM), short-run and long-run relations between RER and Gross Domestic Product (GDP) is evaluated.
The results of this study show that RER in the economy of Iran has declined in the periods 1973-1988 and 2002-2010, and therefore the economy's competitiveness has been decreased in these periods. Johansen’s cointegration test indicates that a positive relation exists between RER and GDP in the long-run. Moreover, VECM estimate shows that a positive shock to the RER results in increasing the GDP in Iran
Keywords:
Real Exchange Rate ; Vector Error Correction Model ; Real Gross Domestic Product (GDP) ; Johansen Cointegration Test

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