The Impact of Monetary Policy on Exchange Market Pressure: The Case of Iran

Exchange market pressure is an important subject which could be applied in different areas. For example it could be used in investigating and analyzing monetary policy. In this paper along with presenting exchange pressure index، we review how monetary authorities of Iran reflected against to EMP during the first quarter of 1368 to fourth quarter of 1391. In order to explain the theory، the Girton and Rober monetary model and in order to estimate the model، Structural Vector Auto Regressive approach (SVAR) have been used. The results indicate that traditional theory of EMP is also applied to Iran. This means that the implementation of monetary expansion policy leads to increasing exchange market pressure. They also show that the effect of variable of money multiplier coefficient on the EMP is positive and the effect of variables of domestic product and the oil price on EMP is negative. The results of decomposition of variance of EMP indicate that in the first period about 95% of changes in this variable are explained by itself. As time passes and during tenth period، the explanatory power of the variable is somewhat reduced so that in the tenth period، about 79% of EMP changes is explained by the variable. Among other variables، the money multiplier coefficient has the most explanatory power which is about 10%. The other variables explanatory powers are as follows: national income 6. 7% domestic credit 3. 38% and finally oil price 1. 61%.