The inflation rate has constantly been volatile in Iran’s economy. At the same time, the considerable fluctuations in the foreign exchange market, the inflationary environment and its impact on inflation expectations, the role of the central bank, and whether or not expectations are consistent with monetary policy indicate a likely correlation between these variables. Therefore, this study investigates separately for different real sectors of an economy during the periods 2001:1-2010:4 and 2011:1-2018:4 whether Iran’s economy was exposed to foreign currency shocks from domestic and external sources. Moreover, monetary policy responses to these shocks were examined using the vector autoregressive method (VAR). The results showed that the price index of all commodity groups increased in response to foreign exchange shocks, regardless of domestic or external sources. The inflationary effects of foreign currency shocks with domestic sources persisted in the medium and long-term, while the inflationary effects of foreign exchange shocks with external sources were moderate in the medium-term and neutralized in the long-term. In addition, the speed of corrections in the deviation from a long-term equilibrium has significantly been greater after the shock of international economic sanctions than the policy of exchange rate unification. Monetary policy was expansionary and strengthened after the domestic-source foreign shock, and inflation expectations did not move in the same direction. On the other hand, monetary policy was contractionary and moderated the inflationary impact of the foreign currency shock, and inflation expectations went in the same direction.
Sadeghi, A., Marzban, H., Samadi, A. H., Azarbayejani, K., & Rostamzadeh, P. (2022). Inflationary Effects of the Foreign Currency Shocks with Different Sources: The Response of Monetary Policy in a Developing Economy. Iranian Economic Review, (), -. doi: 10.22059/ier.2022.89064
MLA
Abdorasoul Sadeghi; Hossein Marzban; Ali Hussein Samadi; Kariem Azarbayejani; Parviz Rostamzadeh. "Inflationary Effects of the Foreign Currency Shocks with Different Sources: The Response of Monetary Policy in a Developing Economy". Iranian Economic Review, , , 2022, -. doi: 10.22059/ier.2022.89064
HARVARD
Sadeghi, A., Marzban, H., Samadi, A. H., Azarbayejani, K., Rostamzadeh, P. (2022). 'Inflationary Effects of the Foreign Currency Shocks with Different Sources: The Response of Monetary Policy in a Developing Economy', Iranian Economic Review, (), pp. -. doi: 10.22059/ier.2022.89064
VANCOUVER
Sadeghi, A., Marzban, H., Samadi, A. H., Azarbayejani, K., Rostamzadeh, P. Inflationary Effects of the Foreign Currency Shocks with Different Sources: The Response of Monetary Policy in a Developing Economy. Iranian Economic Review, 2022; (): -. doi: 10.22059/ier.2022.89064
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