Exchange Market Pressure and the Degree of Exchange Market Intervention: The Case of Iran

In this paper, we will review the foreign exchange market and will try to extract an exchange market pressure and an intervention index for Iran by following the Weymark (۱۹۹۵) approach to evaluate the Central Bank of Iran’s exchange rate policy during ۱۳۶۸:Q۱ to ۱۳۹۱:Q۳. The estimation method employed, is the econometric technique known in the literature as the Two-Stage Least Squares (۲SLS).The exchange market pressure’s mean value of ۰.۰۶۲ provides evidence that depreciating pressure remained dominant over the entire sample period. Also, the  mean  value  of  the  intervention index is ۰.۴۴,  indicating that the foreign  exchange reserve and exchange rate changes absorbed  forty-four  and fifty-six percent of the pressure, respectively. Otherwise the results of the paper show that on an average there was a downward pressure on Iran’s currency and the Central Bank of Iran pursued an active intervention policy. Specifically, as the intervention index shows, the Central Bank of Iran used both exchange rate and foreign exchange reserve interventions for restoring the foreign exchange market to equilibrium levels, a policy known as the managed float exchange rate regime.

Keywords:

Exchange Market Pressure , Intervention Index , Exchange rate , Foreign Reserve , ۲SLS , فشار بازار ارز , شاخص دخالت , نرخ ارز , ذخایر ارزی و روش ۲SLS