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

34 Pages Posted: 25 Jun 2007

See all articles by Mohsen Bahmani‐Oskooee

Mohsen Bahmani‐Oskooee

University of Wisconsin - Milwaukee - Center for Research on International Economics

Magda Kandil

International Monetary Fund (IMF)

Date Written: May 2007

Abstract

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.

Suggested Citation

Bahmani-Oskooee, Mohsen and Kandil, Magda, Exchange Rate Fluctuations and Output in Oil-Producing Countries: The Case of Iran (May 2007). IMF Working Paper No. 07/113, Available at SSRN: https://ssrn.com/abstract=995617

Mohsen Bahmani-Oskooee (Contact Author)

University of Wisconsin - Milwaukee - Center for Research on International Economics ( email )

3210 N. Maryland Avenue, Bolton Hall 802
Bolton Hall 802
Milwaukee, WI 53211
United States

Magda Kandil

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
216
Abstract Views
1,607
Rank
256,055
PlumX Metrics