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

By Magda E. Kandil, Mohsen Bahmani-Oskooee

May 1, 2007

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Format: Chicago

Magda E. Kandil, and Mohsen Bahmani-Oskooee. Exchange Rate Fluctuations and Output in Oil-Producing Countries: The Case of Iran, (USA: International Monetary Fund, 2007) accessed December 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Currencies, Depreciation, Exchange rates, Production growth, Real effective exchange rates

Keywords: Critical value, Exchange rate, WP

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/113
Stock No:

WPIEA2007113
ISBN:

9781451866773
ISSN:

1018-5941

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