سید حسن ملک حسینی

Estimating the real exchange rate misalignment from the equilibrium value and exploring the factors affecting its changes is crucial for both economic policymakers and economic agents. Among the various factors affecting exchange rate misalignment, the exchange rate regime, has received less attention in experimental studies. Accordingly, the present paper seeks to find out the answer to the question of how real exchange rate misalignment is affected by different exchange rate regimes. In other words, in which of the exchange rate regimes is the exchange rate misalignment less and in which one it is higher? To answer the question, the propensity score matching approach has been used. For this purpose, we have used data from 116 developing countries with different exchange rate regimes in 2019. Other factors such as real exchange rate misalignment in the previous period, inflation, the quality of institutions and financial development have been considered as match variables to net the effect of the exchange rate regime on real exchange rate misalignment and to separate the effects of other variables. The results showed that the real exchange rate misalignment from its equilibrium level has responded significantly to the type of exchange rate regime adopted by the countries, so that the floating exchange rate regime increases the real exchange rate misalignment in the selected developing countries wherever implemented. It can be argued that factors such as high exchange rate  fluctuations, a more drastic adjustment in the price level, and speculative bubbles or contagion effects in the floating exchange rate regime have led to an increase in these misalignments.

Exploring effects of the main determinants of exchange rate pass through is crucial for the adoption of various economic policies, including currency and trade policies. The exchange rate regime of countries is the source of exchange rate and price changes and is substantial in the implementation of foreign exchange policies. Among the various factors affecting exchange rate pass through, an exchange rate regime has received less attention in empirical studies. Accordingly, the present paper seeks to find out how the exchange rate pass through, which is proxied as the import price, is affected by different exchange rate regimes. To answer the question, we have used the propensity score matching approach, which is considered as a non-parametric method, to investigate the effect of an exchange rate regime on the exchange rate pass through, while other effective factors are controlled. To this purpose, we have used data of 118 developing countries with different exchange rate regimes in 2019. To evaluate the marginal effect of the exchange rate regime on exchange rate pass through, we have modeled the exchange rate pass through by including other match variables such as the nominal exchange rate, marginal cost of exporters, real GDP growth, trade openness, liquidity growth and inflation. The empirical results showed that the exchange rate pass through has responded significantly to the selection of an appropriate exchange rate regime, so that the adoption of the floating exchange rate regime reduces the degree of exchange rate pass among the counties wherever implemented.

Real exchange rate misalignment from its equilibrium level can have negative effect on economies worldwide, especially on developing countries. For this reason, it is important to economic policymakers to make attempts in order to control for any misalignment. As detection of the real exchange rate is a first step to control for its misalignments, this study has explored the effects of the main determinants on real exchange rate within a framework of a non-linear model using data of 120 developing countries over the period 2000-2019. The model, which was specified as a panel smooth transition regression, contained a set of explanatory variables such as productivity index, the ratio of investment to GDP, the ratio of government spending to GDP, trade openness, term of trade and net foreign assets. The empirical results indicated that changes in all aforementioned explanatory variables affected significantly the countries` exchange rates. In addition, the results revealed that existence of various types of exchange rate misalignments, like over/under- valuation of exchange rate, in most countries during the period, even those the intensity of misalignments were different in the countries under consideration. Among them, Iran experienced the vast fluctuations in the real exchange rate by 2002, while the less deviation from the equilibrium rate happened in the rest of the period. The reason for such misalignment has been typically based on the overvaluation and undervaluation of the domestic currency.

The exchange rate pass-through explains the relationship between changes in national currency and foreign trade of a country, while the responsiveness of trade to the currency changes depends on the perfect or imperfect degree of pass-through.
The objective of this study is to analyze the effect of exchange rate pass-through on inflation in Iran as one of the main oil-exporting countries. To this end, we have specified a Structural Vector Auto-Regressive (SVAR) model including macroeconomic variables such as oil revenues, output gap, free market exchange rate, import prices, producer prices, consumer prices and money supply. To estimate the model, we have used quarterly data over the period 1991:1 - 2012:4.
Empirical results of the model estimation, which are in forms of impulse response functions and variance decomposition, have shown that although the degree of exchange rate pass-through to the price indices has been incomplete, changes in the exchange rate have led to fluctuations in the prices explaining partly Iran’s inflationary situation during the period under consideration. It also reveals the fact that a higher share of imported inflation implies the economy’s dependence on imports.