The Monetary Approach to Exchange Rate in the Selected Persian Gulf Countries in Comparison with the OECD Countries

In this paper، the monetary approach to exchange rate was analyzed through panel cointegration method for the selected Persian Gulf countries in comparison with Organization for Economic Co-operation and Development (OECD) countries for the period of 1989-2005. For this purpose، we apply monetary flexible price model. The results suggested that the establishment of monetary approach to exchange rate in both group of countries and supported the existence of a cointegration relationship among the variables. Moreover، according to different economic structure of both groups of countries، the severity efficacy of variable to exchange rate is different. The results also showed that GDP with negative effect has greatest influence on the change of exchange rate. This implies that adaptation of proper policy to increase GDP not only cause to decline exchange rate، but also has positive effects on GDP. Other variables which determine the trend of exchange rate are money supply and expected inflation rate.