The Study on the Effect of Changes of Oil Revenues on Real Exchange Rate (in Iran’s Economy)

Abstract

The Purpose this paper, is to investigate the effect of oil revenues on real exchange rate in Iran’s Economy by using a macroeconomic model, which has been estimated by 3sls regression technique and annual data during 1965 to 2003 .Provided that the government has taken no policies, the simulation results depict that, a rise in oil revenues will increase GDP, domestic price levels, money supply and real import, respectively, but will decrease Non-oil export. By regarding simulation results, we could say that nominal exchange rate will primarily decrease by oil revenues increase both in short run and long run. Afterwards, it will take an increasing trend and eventually, will go back to the initial equilibrium level. We will also observe real exchange rate decrease (increase) via the nominal exchange rate decrease (increase) in short run. However, in the long run, the real exchange rate will decrease by oil revenues boom and before the oil revenues increase will reach a lower level relative to its initial one.