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Paper Information

Journal:   TAHGHIGHAT-E-EGHTESADI   Summer 2004 , Volume - , Number 65; Page(s) 139 To 163.
 
Paper: 

MEASURING DEVIATION FROM LONG-RUN EQUILIBRIUM PATH OF REAL EXCHANGE RATE IN IRAN: AN APPLICATION OF A STRUCTURAL TRADE MODEL

 
 
Author(s):  NASR ELAHI KH., TAYEBI S.K.
 
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Abstract: 
It is assumed the exchange rate would affect resources balance through a switching- expenditure mechanism. Accordingly, the behavior of real exhange rate can be examined empirically. Of all structuralmodels, the most applicableprocedurerelies on the partial trade model, which is specifiedbased upon the basic equilibriumof Williamsonexchangerate. Consideringa specificconcept of desired current account, this sort of model identifies a ftame of the real exchange rate (Borowski and Couharde 2000). In a new classical ftamework,savingcan be equivalentto differencebetweenproduction and consumption plus payments of external debt interests. Consumptionis also invarianton the basic of the life cycle theory.An optimal (desired) current accuntcan thus be as a result of difference betweeninvestmentand savingplus interestsof externaldebt. Hence, developmentin real exchangerate can providethe desired conditions of the current account blance,which is called as a basic equilibrium (Williamson1994). Due to assumptios of a trade model, the relative gap between potentialand actual productionis one of the maindeterminantsof realexchangerate, whichis computed,in the presentstudy,bythe filtering Hodrick-Prescott method for Iran. Determining optimal current account, the paper concludes that the relevant values obtained are negative for pre-revolutionary perod, whereas positive for postrevolotionaryperiod. The results are quite well-matchedwith Irans presenteconomiccondition. Overall,empirical~esultsof equilibriumtrademodelfor Iran reveal the fact that deviation from long-run equilibrium path of the real exchange rate has gradually diminished, even though it has been accompanied by correspondent fluctuations in Irans economic situation.
 
Keyword(s): REAL EXCHANGERATE, LONG-RUNEQUILIBRIUMPATH, EQUILIBRIUM TRADE MODEL, POTENTIAL PRODUCTION,DESIRED CURRENT ACCOUNT, OPTIMAL TRADE BALANCE,FILTERINGHODRICK-PRESCOTTMETHOD.
 
References: 
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  Persian Abstract Yearly Visit 66
 
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