The Journal of Economic Studies and Policies

The Journal of Economic Studies and Policies

The Effects of Sectoral Productivity Rates and Demand Shocks on the Real Exchange Rate in Iran during the 1966 – 1999

Document Type : Original Article

Authors
Jafar Haghighat 1
Hasan Jorckani 2
1 Assistant Professor of Tabriz University
2 Master of Economics
Abstract
The real exchange rate is the key relative price in international finance. Thus it is not surprising that so much attention has been given to the determinants of this variable both in the short and long run. This research investigates the long run relationship between the real exchange rate, sectoral productivity rates, and demand shocks in Iran during the 1966 - 1999.
Some economists, such as Menzie Chinn and Johanson (1997) and Jahanara (2000),about effects of' sectoral productivity and demand shocks on real exchange rate in OECD countries and 7group show that there is a long run relationship between these variables and real exchange rate. Models of this research have estimated the relationship between real exchange rate, sectoral productivity in traded and non traded sectors, and demand shocks using cointegration techniques of Johansen in period of 1966 - 1999.
Results show that there is a negative relationship between real exchange and sectoral productivity, that’s, increase in productivity decreases the real exchange rate. On the basis of the empirical result it is recommended that government should encourage the investment and formation of capital which will improve the productivity rates and appreciation of the currency.
Keywords
Real Exchange Rate
Purchasing Power Parity Sectional Productivity in Traded and Nun Traded Sections
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