The Impact of Trade and Investment Risk on Exchange Rate in Iran

This study aims to investigate the impact of trade and investment risks on the real effective exchange rate from the first quarter of 2014 to the fourth quarter of 2021 using the Structural Vector Autoregression (SVAR) method. Gross Domestic Product (GDP) per capita, inflation rate, and Globalization Index are controlled variables. Results indicate that trade and investment risks have a significant positive effect on the real effective exchange rate throughout the study period, leading to an increase in Iran's real effective exchange rate in the long run. Additionally, the variance decomposition reveals that 23.37% of the variation in the real effective exchange rate in the tenth quarter is attributable to trade and investment risks. Moreover, inflation rate, GDP per capita, and globalization also positively influence Iran's real effective exchange rate.