The Impact of Exchange Regimes on Economic Growth with Emphasis on the Role of Inflation in Iran: New Findings (Markov Switching Approach)

The main purpose of the present study is to investigate the effects of currency regimes on economic growth with emphasis on the role and intermediation of inflation in Iran in different business cycles. In this regard, using the Markov Switching method in the period 1340-1394, the objective has been studied. The estimation results show that the Iranian economy has three regimes, moderate growth and high economic growth, so that the moderate growth regime should use a fixed exchange rate regime، to increase economic growth by increasing stability and increasing investment. During the recession and in the range of -0.16 to 14% of inflation, the fixed system is suitable and in the rest of the floating-rate inflation rates it is suitable for economic growth by increasing the competitiveness of domestic products against foreign products that have been weakened due to inflation Estimated results for high growth period show that in the inflation range of 5 to 44%, the floating system has the best performance for economic growth due to increased competitiveness of domestic production against foreign products.