Oil prices and the real exchange rate in Iran: an ARDL bounds testing approach

ABSTRACT

This article examines the impact of oil prices on the real exchange rate in Iran during the 1961–2014 period using the autoregressive distributed lag approach to cointegration as the estimation method. We find that higher oil prices lead to appreciation of the real exchange rate. The results reveal that oil prices have both short-run and long-run effects on the real exchange rate.

KEYWORDS:

• Cointegration
• Iran
• oil prices
• real exchange rate

JEL CLASSIFICATION:

• C32
• F31
• Q43

Acknowledgement

Valuable comments of two anonymous referees are greatly appreciated. Remaining errors are ours.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ The Laspeyres formula is generally used for the calculation of consumer price indices.

² According to the Balassa–Samuelson effect (Balassa 1964; Samuelson 1964), if the productivity growth differential between the tradable and the nontradable sector is higher in the domestic economy than in the foreign economy, its real exchange rate would tend to appreciate.

³ In this respect, Korhonen and Juurikkala (2009) found little evidence for the Balassa–Samuelson effect in their sample of nine OPEC countries, including Iran.

Additional information

Funding

This work was supported by the Export Development Bank of Iran (EDBI) under Grant [31319318].