Monetary governance and improving the business environment

Abstract

Both policymakers and market participants are very interested in the proper estimation of exchange rate equilibrium and their possible movements. They are also interested in understanding the factors that determine the equilibrium real exchange rate and the factors that lead to real exchange rate misalignment from its equilibrium level. The real exchange rate is seen as the main indicator of foreign competition. Therefore, the real increase in the exchange rate is often interpreted as a loss of price competition, and therefore, knowing the factors affecting it is very important. Therefore, in the present study, by using Iran's economic information in the time period from 2000 to 2018, the factors affecting the exchange rate and the non-adjustment of the exchange rate were investigated. The obtained results showed that government consumption expenditures, productivity, trade liberalization and real interest rate have a significant effect on the real exchange rate. Also, exchange rate flexibility also affects exchange rate mismatch, but no significant relationship was observed between other variables. According to the results of the study, it can be said that the government's policy to increase investment in production, reduce interest rates and increase non-oil exports can help to adjust the exchange rate and lead to the stability of the exchange rate.