Reliability Tests of Monetary Approach to Exchange Rate and Balance of Payments in Iranian Economics

The aim of the present article is to study the reliability test of monetary approach to the exchange rate and balance of payments in the Iranian economics, based on which the flexibility exchange rate system and fixed exchange rate system, the balance of payments is of monetary root which sometimes is considered of importance for monetary policy making. Thus, in order to examine the above-mentioned hypothesis in Iranian economics, in this study, with regard to the dual exchange rate in the Iranian economics, the reliability test with regard to the interaction of official versus unofficial exchange markets on one another we used a model equally tailored for the dual exchange rate systems, being monetary based exchange rates and balance of payments and applying a simultaneous equation system, they were tested. The results of these tests show that although PPP theory is of weak validity in the Iranian economics in the long run, the monetary approach of the exchange rate and the balance of payments are not of significant validity (reliability) and if being monetary based, exchange rate fluctuations in the free market have a higher validity.