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

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  • Mohsen Bahmani-Oskooee
  • Magda Kandil

Abstract

Conventional wisdom states that currency depreciation in oil-producing countries is 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 nonoil exports in the past decade. Against this background, the paper tests whether the conventional wisdom still applies to Iran and concludes that the emergence of the nonoil export sector has made currency depreciation expansionary. The expansionary effect is particularly evident regarding 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 toward achieving stability in the real effective exchange rate may strike the necessary balance.

Suggested Citation

  • Mohsen Bahmani-Oskooee & Magda Kandil, 2010. "Exchange Rate Fluctuations and Output in Oil-Producing Countries: The Case of Iran," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(3), pages 23-45, May.
    • Handle: RePEc:mes:emfitr:v:46:y:2010:i:3:p:23-45
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    Cited by:

    1. Melhem Sadek & Diallo Abdul Salam & Terraza Michel, 2011. "Hypothesis of Currency Basket Pricing of Crude Oil: An Iranian Perspective," Working Papers 11-13, LAMETA, Universtiy of Montpellier, revised Jun 2011.
    2. Burhan, Nik Ahmad Sufian & Salleh, Fauzilah & Burhan, Nik Mohd Ghazi, 2015. "National Intelligence and Private Health Expenditure: Do High IQ Societies Spend More on Health Insurance?," MPRA Paper 77328, University Library of Munich, Germany.
    3. Nada Shokry & Mohamed Bouaddi, 2018. "Devaluation: Is it Contractionary or Expansionary to Economic Sectors? The Case of Egypt," Working Papers 1252, Economic Research Forum, revised 13 Nov 2018.
    4. Wai-Mun Har & Ai-Lian Tan & Chong-Heng Lim & Chai-Thing Tan, 2017. "Does Interest Rate Still Matter in Determining Exchange Rate?," Capital Markets Review, Malaysian Finance Association, vol. 25(1), pages 19-25.
    5. Roldan Alba, 2022. "The Golden Fetters in the Mediterranean Periphery. How Spain and Italy Overcame Business Cycles Between 1870 and 1913?," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 16(1), pages 170-193, January.
    6. Yavari, Kazem & Najjarzade, Reza & Tavakolian, Hossein & Bahador, Ali, 2016. "Effect of Nominal Exchange Rate Volatility on Output in Iran’s Economy," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 11(4), pages 419-442, October.
    7. Zakee SAADAT & Dawood MAMOON, 2016. "Destination EU and USA: Improving Export Potential of Pakistan by Trading with India," Journal of Economics and Political Economy, EconSciences Journals, vol. 3(4), pages 659-669, December.
    8. Sanginabadi, Bahram & Heidari, Hassan, 2012. "The Effects of Exchange Rate Volatility on Economic Growth in Iran," MPRA Paper 52406, University Library of Munich, Germany.
    9. Mohsen Bahmani-Oskooee & Rustam Jamilov, 2014. "Export diversification and the S-curve effect in a resource-rich state: evidence from Azerbaijan," Economic Change and Restructuring, Springer, vol. 47(2), pages 135-154, May.
    10. Mansour Zarra-Nezhad & Amin Mansouri, 2014. "Impact of spatial effect on volatility of trade," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 4(7), pages 358-368, July.
    11. Magda Kandil & Ida A. Mirzaie, 2021. "Macroeconomic policies and the Iranian economy in the era of sanctions," Middle East Development Journal, Taylor & Francis Journals, vol. 13(1), pages 78-98, January.
    12. Muhammad Shahbaz & Faridul Islam & Naveed Aamir, 2012. "Is devaluation contractionary? Empirical evidence for Pakistan," Economic Change and Restructuring, Springer, vol. 45(4), pages 299-316, November.
    13. Ghoddusi, Hamed & Morovati, Mohammad & Rafizadeh, Nima, 2019. "Foreign Exchange Shocks and Gasoline Consumption," Energy Economics, Elsevier, vol. 84(C).
    14. Umar Aliyu Shuabiu & Mohammed A. M. Usman & Behiye Çavuşoğlu, 2021. "The Nexus among Competitively Valued Exchange Rates, Price Level, and Growth Performance in the Turkish Economy; New Insight from the Global Value Chains," JRFM, MDPI, vol. 14(11), pages 1-19, November.
    15. Esfandiar Jahangard & Arian Daneshmand & Mehdi Tekieh, 2017. "Oil prices and the real exchange rate in Iran: an ARDL bounds testing approach," Applied Economics Letters, Taylor & Francis Journals, vol. 24(15), pages 1051-1056, September.
    16. Kandil Magda & Mirzaie Ida A., 2017. "Iran’s Inflationary Experience: Demand Pressures, External Shocks, and Supply Constraints," Review of Middle East Economics and Finance, De Gruyter, vol. 13(2), pages 1-19, August.

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