REAL EXCHANGE RATE VARIABILITY AND THE CHOICE OF EXCHANGE RATE REGIME IN IRAN

This paper intends to draw the relation between real exchange rate variability and the choice of exchange rate regime. The hypothesis was tested by estimating a simultaneous Limited-Dependent variable model with data from a time series during 1973-1996. The paper examines a number of exogenous determinants of exchange rate variability and the choice of exchange rate regime. Our results indicate that: 1) The more opening in Iran's economy, the greater in REER variability, 2) An increase in domestic monetary shocks will result in greater REER variability, 3) REER variability decreases in the fixed exchange rate regime, 4) As an openness increases, the choice of the floating regime is more suitable, 5) The greater REER variability, the more likely a fixed exchange rate.