Common Trends and Structural Change: A Dynamic Macro Model for the Pre- and Postrevolution Islamic Republic of Iran
June 1, 1999
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Summary
This paper uses a common trends model to study how prices, the black market exchange rate, money, and real output have developed over a period covering both pre- and post-revolution Iranian data. It is shown that monetary shocks have significant short-run effects on output, but permanent effects on the price level and exchange rate, that is, expansionary monetary policy is not consistent with achieving low inflation or a stable unified exchange rate. The real shocks generate higher growth and lower inflation, suggesting that supply-side policies are consistent with the goals in the Islamic Republic of Iran’s second five-year development plan.
Subject: Demand for money, Exchange rates, Foreign exchange, Inflation, Money, Prices, Purchasing power parity
Keywords: cointegration, Demand for money, demand shock, exchange rate, Exchange rates, inflation, inflation rate, integrating vector, money demand, money demand function, nominal exchange rate, output, Purchasing power parity, real and nominal shocks, time series, WP
Pages:
30
Volume:
1999
DOI:
Issue:
082
Series:
Working Paper No. 1999/082
Stock No:
WPIEA0821999
ISBN:
9781451850420
ISSN:
1018-5941
