The Positive Shock Effects of Exchange Rate on GDP

Relative prices determine resource allocation and economic decisions. Now by increasing trade and financial transactions،exchange rate plays an effective role in the decision-making of Economic Agents and affects macroeconomic variables. This paper studies the effects of Exchange rate depreciation on Iran’s macroeconomic variables during 1973-2008. We use Vector auto Regressive Modeland the Pesarn and Shin (1998) approach. The impulse response functions show Positive Exchange rate shocks reduce non oil GDP and increase the price with respect to equilibrium levels. High dependency of domestic products on intermediate and capital input enhance cost channel exchange rate at least in the short run.