Investigation of Coefficients Instability in the Foreign Exchange Interventions Reaction Function in Iran

In this paper, we estimate the reaction function of foreign exchange intervention in Iran, during 1381q2-1393q4. According to the existence of a non-linear relationship between variables, we used smooth transition regression model. The results of this investigation indicate that the monetary authority intervention in Iran is a function of the nominal exchange rate growth and its misalignment, the lag of central bank's foreign reserves growth and the growth of government oil revenues. According to the tests, the exchange rate growth is an appropriate transition variable in the estimation with the threshold of 10.31 present. Around this amount, the coefficients follow two different regime structures. The results also reflect the fact that monetary authorities in Iran have shown a greater response to the exchange rate growth after crossing the threshold.