Examination of exchange rate overshooting and prediction of overshooting in Iran with use of neural networks

The effectiveness of monetary shocks on exchange rate fluctuations in the context of overshooting theory is one of the most important subjects in macroeconomic. Since the economy of Iran after revolution years has exposed to monetary base expansion, so examination of the relation between expansionary monetary policy and exchange rate fluctuations and then the role of increasing the degree of floating exchange rate with increasing of this fluctuation, is the principal purpose of this research. Therefore, in the first section of the research, the effectiveness of a monetary shock on exchange rate during the period of 1370-1386 has examined. In the overshooting exchange rate models form was seen, after a monetary shock, exchange rate shoots over the long run level and in the long run, is adjusted and stands in the level that is over the early level. In the second section research, after the prediction of the exchange rate market by the neural networks, it was seen, by increase the degree of floating exchange rate, the scope of exchange rateovershooting increases