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Currency Substitution Theory, a New Chanel to Enter the Exchange Rate as the Monetary Transmission Mechanism

Author

Listed:
  • Sara Shahraki

    (Ferdowsi University of Mashhad, Iran)

  • Ahmad Sabahi

    (Ferdowsi University of Mashhad, Iran)

  • Mohammad Hossein Mahdavi Adeli

    (Ferdowsi University of Mashhad, Iran)

  • Mostafa Salimifar

    (Ferdowsi University of Mashhad, Iran)

Abstract

This paper examines whether in analysis of the impact of monetary policy, the exchange rate can play a role along with the interest rate as a transmission mechanism of monetary policy effects on economic variables or not? For this purpose, the general dynamic stochastic equilibrium models were used in the form of a New Keynesian small open macro-economy. This model was designed for Iran's economy by considering oil-based economy's and the currency substitution Existence. Then, its calibration and simulation was conducted with Iran's economic data for the period of 1995-2011. The results from model validation, univariate and multivariate recognition of Markov Monte Carlo chain and analysis of the model impulse responses showed that in Iran's economy, the exchange rate plays a role along with the interest rate as a monetary transmission mechanism.

Suggested Citation

  • Sara Shahraki & Ahmad Sabahi & Mohammad Hossein Mahdavi Adeli & Mostafa Salimifar, 2016. "Currency Substitution Theory, a New Chanel to Enter the Exchange Rate as the Monetary Transmission Mechanism," Economic Analysis Working Papers (2002-2010). Atlantic Review of Economics (2011-2016), Colexio de Economistas de A Coruña, Spain and Fundación Una Galicia Moderna, vol. 2, pages 1-1, December.
    • Handle: RePEc:eac:articl:11/15
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    References listed on IDEAS

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