Exchange Rate Overshooting in Iran during ۱۹۷۳-۲۰۱۹

The value of the Iranian Rial has been depreciated per dollar in the recent decade and the exchange rate overshooting is said to be an important short-run phenomenon. This contribution studies the overshooting and undershooting of exchange rate in Iran by applying Dornbusch monetary model. In this study we have shown that whether or not the exchange rate in short-run deviates from long-run equilibrium magnitude and if it does so, by what velocity it runs towards long-run equilibrium magnitude. By using time series data for the period of ۱۹۷۳ to ۲۰۱۹, this important subject has been analyzed by employing error-correction and co-integration models. The econometric test results show that this theory works in Iran.

Keywords:

exchange rate , overshooting , undershooting , error correction and co-integration model