Investigation of the Factors Affecting Real Exchange Rate in Iran

This paper intends to investigate the factors affecting the real exchange rate in Iran in the period of 1978-2008. In this part, the econometric methodology and vector autoregressive model that is known as VAR is used to investigate the effect of proper variables on the real exchange rate. The results of Johansson-Jousilious test confirmed co-integration between variables, and thus long-run equilibrium relationship was confirmed among proper variables. Overall, the impulse and response functions showed that the shocking of variables, oil price and volume of money flows, has a positive impact on the real exchange rate and put it above its permanent level in the whole period of study. The results of variance decomposition showed that the most effects belonged to oil price and then volume of money flow that in fact represents greater relative importance of these variables in comparison with other variables among all model variables.