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Demand for Money and the Black Market Exchange Rate Expectations: Further Empirical Evidence


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  • Hamid Tabesh

    (University of Wisconsin-River Falls)

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    This paper explores the impact of the black market exchange rate expectations on the demand for money in Iran. In the post-revolution era, Iran has imposed a great deal of restriction on the exchange market. The restrictions were so severe that in the period 1979-89, the nation basically was a closed economy. However, as the exchange market restrictions intensified, an active underground exchange market emerged in which key currencies in general and the U.S. dollar in particular, were exchanged several-fold higher than the official rate. The findings suggest that in the sample period 1959-94, demand for real cash balances has been significantly affected by the expected black market exchange rate. Further, the results of a cointegration test provide ample evidence that the expected appreciation/depreciation in the black market exchange rate, real income, and the rate of inflation jointly determine the demand for real M2-money in Iran.

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    Bibliographic Info

    Article provided by Missouri Valley Economic Association in its journal The Journal of Economics.

    Volume (Year): 26 (2000)
    Issue (Month): 2 ()
    Pages: 1-9

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    Handle: RePEc:mve:journl:v:26:y:2000:i:2:p:1-9

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    Cited by:
    1. Shahrestani, Hamid & Sharifi-Renani, Hosein, 2007. "Demand for money in Iran: An ARDL approach," MPRA Paper 11451, University Library of Munich, Germany.


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