| Abstract:
There has been extensive debate in Iran over recent years about appropriate exchange regime. Some are fixed exchange rate pros, some
advocate the managed floating regime, and others believe in pegging the exchange rate in which nominal exchange rate is annually adjusted to the
rate of inflation. In a recent economic reform plan called the "Rihabililation of the Economy", however, the latter is considered as the
appropriate exchange regime.
The present paper probes that how, and to what extend, compliance
with this exchange regime, i.e. "Real Exchange Rate Targeting" would help
achieve economic stability. Using macroeconomic model the issue under goes mathematical procedures of analysis and the results in a general implication that the said regime will not yield economic stability because
of country"s peculiar status of smaller trade sector compared to non-trade sector. Numerical simulation depicts that economic stability under such an
exchange regime may be achievable only if the trade sector of the economy enjoys a later portion.
|