The Impacts of Unified Exchange Rate System on Domestic Price in Iran

The main purpose of this paper is to examine the impact of exchange rate unification policies on the domestic price in Iran using a co-integration approach between 1971and 2002. For doing this, a weighted average of exchange rate under the multiple exchange rate regimes is used as a proxy for the unified exchange rate. The impact of this unified exchange rate on the domestic price alongside with other variables is evaluated by multivariate Johansen’s co-integration technique. The main finding indicates that the unified exchange rate has a positive effect on the domestic price in Iran. In other words, the move from multiple exchange rate system to unified exchange rate maybe accompanied with inflationary pressure.