List of Articles Self-explanatory Bayesian Vector Autoregression Model.

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  1 - The relationship between exchange rate overshooting and currency substitution in Iran’s economy
  Seyed Mansour  Heshmati Sanzighi Rahman Saadat Esmaeil Abounoori
  When a country's domestic currency fails to fulfill its roles, foreign currency often replaces it, a phenomenon known as currency substitution. This is particularly common in developing countries and influenced by both economic and political factors. One significant eco More

  When a country's domestic currency fails to fulfill its roles, foreign currency often replaces it, a phenomenon known as currency substitution. This is particularly common in developing countries and influenced by both economic and political factors. One significant economic aspect affecting currency substitution is exchange rate overshooting. The main objective of this study is to investigate the relationship between exchange rate overshooting and currency substitution in Iran. Utilizing the Kamin-Ericsson (2003) method, we first examine the foreign currency in circulation and the volume of currency substitution in Iran’s economy using annual data from 1961 to 2021. Then, the Bayesian Vector Autoregression (BVAR) method employed to analyze the impact of exchange rate overshooting on currency substitution. The results indicate that exchange rate overshooting and inflation consistently lead to increased currency substitution in Iran’s economy. Conversely, economic growth negatively affects currency substitution. Additionally, neutralizing the effects of shocks related to exchange rate overshooting, economic development, and inflation requires more than five years. Therefore, economic policymakers must consider these factors when managing currency substitution. Manuscript profile