The Study of Competitiveness Based on the Real Effective Exchange Rate in Iran

Abstract

Real Effective Exchange Rate (REER) is one of the main factors in international competitiveness whose increase or decrease will enhance or reduce a country's export competitiveness. So its maintenance or enhancement will have positive effects on a country's trade balance and vice versa. Other factors effect on REER too. Economic shocks may change the REER in the short-term but in the long-term, the REER is determined based on fundamental variables. So popular form of equations has been provided to assess the effects of fundamental variables on REER .The intended model was chosen after different estimations and studying them theoretically and empirically and in terms measures of goodness of fit. The results of the estimations indicate that with respect to different statistics, the thesis model is that which the dependent variable is the REER based on export unit value. This model has been estimated by Maximum Likelihood Estimation (MLE) method using the calculated data for REERs and the data relevant to other variables. The estimated relationship for REER indicates a long-term one in which all estimated coefficients has the expected signs and comply the theoretical foundations.