A Survey of the Sources of Real Exchange Rate and Inflation Fluctuations in a survey of the Iran

Real exchange rate stability is one of the most important tools in economic growth and development since it affects capital inflows, foreign direct investment and trade according to comparative advantages. This important aims can be reached by investigating the sources of real exchange rate fluctuations, its relative shares and historical dynamic effects.
It is well known that real exchange rate fluctuations can be attributed to real and nominal shocks. Measuring and analyzing the relative share of different shocks can help the researchers and policy makers to model and design proper stabilization policy.
This paper provide some evidence of the role of real and nominal shocks in explaning the real exchange rate and inflation movement by using the Structural VAR approach. We finds that real shocks play a significant role in explaining real exchange rate fluctuationds and nominal shocks in explaining inflation movement Iran.