The Relationship between Monetary Policy and Exchange Rate in Iran

In any period of time and economic condition، specific monetary and fiscal policies are used. Hence the influence of monetary policy depending on the adopted monetary instruments، is different. But the important issue is the impact of monetary policy on other parts of the economy. One of the foeffective factor monetary policy is exchange rate. The aim of this study is to examine the relevance and effectiveness of monetary policy on exchange rates using annual time series of 1989-2007 and auto regressive distributed lag method (ARDL). The results of this study indicated that the effect of monetary policy on exchange rates is positive and significant in the long term. National income have a significant negative impact on exchange rates. While the impact of unstable fluctuations of exchange rates and consumer price index on the exchange rate are not significant. In short term، monetary policy after one lag period and unst exchange rates. Unstable flactuation of exchange rate have significantly positive effect on exchange rates، while national income and consumer price index have significantly negative effect on exchange rates.