Using Lucas Experimental Method to Investigate the Relationship between Exchange Rate Overshooting and Business Cycles in Iran
Subject Areas : Industrial Management
Farzad
Moayeri
1
(PhD student in Economics, Department of economics, Kerman Science and Research Branch, Islamic Azad University, Kerman, Iran)
Mohsen
Zayandeh Rood
2
(i
Assistant Professor in Economics, Department of economics, Kerman Branch, Islamic Azad University, Kerman, Iran)
Seed Abdolmajid
Jalaei Esfandabadi
3
(Professor of in Economics, Shahid Bahonar University of Kerman, Iran)
Hossien
Mehrabi Basharabadi
4
(Professor of in Economics, Shahid Bahonar University of Kerman, Iran)
Keywords:
Abstract :
Exchange rate shocks due to increased risk and uncertainty of production are concerned as a leader variable in creating economic instability in the country. The proof of this can help to adopt economic policies. During 1989 -2013, this has repeatedly been met with Exchange rate overshooting. This article attempts to answer this question that the exchange rate overshooting plays a key role as a leading variable in business cycles in Iran economy. In this regard, using Hodrick-Prescott filtering method, trends, and exchange rate shocks and economic cycles in 1989 -2013 calculated. Then, four complete cycles of currency (peak-peak) were identified. Next, applying Lucas experimental method, the relationship between Log of GDP shock and the exchange rate cycles was investigated at the time of each four cycles. The results showed that exchange rate shocks played as a leading variable in all periods
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