Investigating the Relationship between Exchange Rate and Interest Rate in Iran's Economy: A Wavelet Coherence Approach

Document Type : Research Article


1 PhD student in Monetary Economics, Department of Economics, Aliguderz Branch, Islamic Azad University, Aliguderz, Iran

2 Assistant Professor, Department of Economics, Ayatollah Boroujerdi University, Borujerd, Iran

3 Assistant Professor of Mathematics Department, Aligudarz Branch, Islamic Azad University, Aligudarz, Iran


In the present study, by presenting the wavelet method (economic and physical analysis) and coherence analysis, the relationship between the real exchange rate and the real interest rate in the Iranian economy was re-explained based on the theory of purchasing power parity in the form of a monetary dual model in the short-term, medium-term and long-term time horizons. For this purpose, the data in available monthly and used during the period from April 1359 to March 1399. The results of the Granger causality test reject the assumption of causality in all time periods from the real interest rate to the real exchange rate, however, in the short term and in some periods, the causality relationship from the exchange rate Real is towards the real interest rate. Based on the results obtained (based on monthly data), for the real exchange rate index and the real interest rate, many correlation areas have been observed in intervals of less than one year, almost throughout the time period. This shows a strong correlation between the two variables in the short term. Also, the results indicate that the intensity and direction of the relationship between the two variables is not constant in the short term and has changed repeatedly, so that the monetary model cannot be interpreted with sticky prices. By moving from the short term to the long term, the relationship between the real interest rate and the real exchange rate index is in phase, and the real interest rate variable is leading and the real exchange rate is declining; Therefore, in the medium-term and long-term horizon, a direct relationship between these two variables can be seen to an extent that confirms the theory of purchasing power parity (monetary model with flexible prices).


Main Subjects

- پورمقیم، سید جواد، (1394). اقتصاد بین‌الملل (2). تهران: انتشارات سمت.
- تفضلی، فریدون، (1396). اقتصاد کلان نظریه و سیاست‌های اقتصادی. تهران: نشر نی.
- توانایان‌فرد، حسن، (1385). فرهنگ تشریحی اقتصاد. تهران: نشر جهان رایانه.
- زمانی‌فراهانی، مجتبی، (1371). پول‌، ارز و بانکداری. انتشارات صاحب اثر.
- شجری، هوشنگ؛‌ و نصراللهی، خدیجه، (1387). مالیۀ ‌بین‌الملل ‌و سیر تحولات ‌ارزی ایران. تهران: نشر شابک.
- فرهنگ، منوچهر، (1384). فرهنگ علوم اقتصادی. تهران: انتشارات آسیم.
- قره‌باغیان، مرتضی، (1372). فرهنگ اقتصاد و بازرگانی. تهران: انتشارات رسا.
- گلریز، حسن، (1380). فرهنگ توصیفی اصطلاحات پول، بانکداری و مالیه بین‌الملل. تهران: انتشارات فرهنگ معاصر.
- محتشم‌دولتشاهی، طهماسب، (1379). مبانی علم اقتصاد (اقتصاد خرد، اقتصاد کلان). تهران: انتشارات خجسته.
- منتظرظهور، محمود، (1378). اقتصاد (اقتصاد خرد، اقتصاد کلان). تهران: انتشارات دانشگاه تهران، ۲۵۳۵.
- درگاهی، حسن؛ و گچلو، جعفر، (1380). «بررسی رفتار کوتاه مدت و بلندمدت نرخ ارز حقیقی در اقتصاد ایران». پژوهشنامۀ بازرگانی، 21: 3-4.
- شیرازی، همایون؛ و نصراللهی، خدیجه، (1392). «مدل‌های پولی و پیش‌بینی نرخ ارز در ایران». فصلنامۀ سیاست‌های مالی و اقتصادی، 4: 5-24.
- حبیب‌دوست، امیر؛ و جلائی، سید عبدالمجید، (1391). «بررسی رابطۀ نوسان‌های نرخ ارز و بازدهی سهام با استفاده از تحلیل موجک در بخش‌های مختلف بورس اوراق بهادار تهران». فصلنامۀ پژوهش‌های اقتصادی ایران، 17 (52): 32-9.
- حسینی‌نسب، سید ابراهیم؛ خضری، محسن؛ و رسولی، احمد، (1390). «تعیین اثرات نوسانات قیمت نفت بر بازدهی سهام بورس اوراق بهادار تهران: آنالیز موجک و راه گزینی مارکف». فصلنامۀ مطالعات اقتصاد انرژی، 8 (29): 60-31.
- دائی‌کریم‌زاده، سعید، (1394). «بررسی پدیدۀ جانشینی پول و اثر تنش نرخ ارز بر تقاضای پول در ایران». فصلنامه اقتصاد کاربردی، 5 (17): 7-6.
- شریف‌آزاد، محمدرضا، (1384). «عوامل‌ مؤثر بر‌ نرخ ارز در ایران». فصلنامۀ اقتصاد و مدیریت، 66: 31-43.
کابوسی، مهدی، (1391). «بررسی رابطۀ نرخ ارز و نرخ بهره براساس تئوری فیشر». فصلنامۀ اقتصاد مالی و توسعه، 22: 91-114.
- Aguiar-Conraria, L.; Azevedo, N. & Soares, M. J., (2008). “Using wavelets to decompose thetime-frequency effects of monetary policy”. Phys. A: Stat. Mech. Appl. 387: 2863–2878.
- Aguiar-Conraria, L. & Soares, M. J., (2010). The continuous wavelet transform: A primer (No. 23/2010). NIPE-Universidade do Minho.
- Bautista, C. C., (2003). “Interest rate-exchange rate dynamics in the Philippines: a DCCanalysis”. Appl. Econ. Lett. 10: 107–111.
- Branson, W. H., (1983). “Macroeconomic determinants of real exchange rates”. In: Herring, R. J. (Ed.), Managing Foreign Exchange Risk. Cambridge University P- ress, Cambridge.
- Branson, W. H. & Halttunen, H., (1979). “Asset-market determination of exchange rates: initial empirical and policy results”. In: Martin, J. P., Smith, A. (Eds.), Trade and Payments Adjustment under Flexible Exchange Rates. Macmillan, London.
- Branson, W. H.; Halttunen, H. & Masson, P., (1977). “Exchange rates in the short run: theDollar-Deutschemark rate”. Eur. Econ. Rev. 10: 303–324
- Bureau of Economic Research. Choi, I., Park, D., (2008). Causal relation between interest and exchange rates in the Asian.
- Calvo, G. A. & Reinhart, C. M., (2002). “Fear of floating”. Q. J. Econ. 107: 379–408.
- Calvo, G. A. & Reinhart, C. M., (2005). “Fixing for your life”. In: Calvo, G.A. (Ed.), Emerging Capital Markets in Turmoil: Bad Luck or Bad Policy?. MIT Press, Cambridge, MA.
- Caraiani, P., (2012). Stylized facts of business cycles in a transition economy in time.
- Chinn, M. D. & Meredith, G., (2005). Testing Uncovered Interest Parity at Short and Long Horizons during the Post-Bretton Woods Era (Working Paper No. 1077). National.
- Dai Karimzadeh, S., (2015). “Investigating the phenomenon of money substitution and the effect of exchange rate tension on money demand in Iran”. Applied Economics Quarterly, 5(17): 6-7.
- Dargahi, H. & Gachlo, J., (2001). “Investigation of the short-term and long-term behavior of the real exchange rate in the Iranian economy”. Business Journal, 21: 3-4.
- Demir, İ., (2014). “Monetary policy responses to the exchange rate: empirical evidence fromthe ECB”. Econ. Model. 39: 63–70.
- Dornbusch, R., (1976). “Expectations and exchange rate dynamics”. J. Political Econ. 84: 1161–1176.
- Drazen, A. & Hubrich, S., (2006). “A simple test of the effect of interest rate defense”. J. Jpn.Int. Econ. 20: 612–636.
- Eichanbaum, E. & Evans, C. L., (1995). “Some empirical evidence on the effects of shocks tomonetary policy on exchange rates”. Q. J. Econ. 110: 975–1009.
- Eichengreen, B., (2006). “Can emerging markets float? Should they target inflation?”. In: Vernengo, M. (Ed.), Monetary Integration and Dollarization: No Panacea. Edward.
- Farhang, M., (2005). Culture of economic sciences. Tehran: Asim Publications.
- Gençay, R.; Selçuk, F. & Whitcher, B. J., (2001). An introduction to wavelets and other filtering methods in finance and economics: Elsevier.
- Golriz, H., (2001). “Descriptive dictionary of money, banking and international finance terms”. Tehran: Contemporary Culture Publications.
- Granville, B. & Mallick, S., (2010). “Monetary Policy in Russia: identifying exchange rate shocks”. Econ. Model. 27: 432–444
- Habibdoost, A. & Jalai, S. A. M., (2012). “Investigating the relationship between exchange rate fluctuations and stock returns using wavelet analysis in different sectors of Tehran Stock Exchange”. Iranian Economic Research Quarterly, 17(52): 9-32.
- Hacker, R. S.; Karlsson, H. K. & Månsson, K., (2014). “An investigation of the causal relationsbetween exchange rates and interest rate differentials using wavelets”. Int. Rev. Econ. Financ. 29: 321–329.
- Hnatkovska, V.; Lahiri, A. & Vegh, C., (2012). The exchange rate response puzzle (May 31, 2012). Available at SSRN: ⟨⟩.
- Holtemöller, O. & Mallick, S., (2013). “Exchange rate regime, real misalignment and currencycrises”. Econ. Model., 34: 5–14.
- Holtemöller, O. & Mallick, S., (2016). “Global food prices and monetary policy in an emergingmarket economy: the case of India”. Asian J. Econ. 46: 56–70.
- Hosseininaseb, S. E.; Khazri, M. & Rasouli, A., (2011). “Determining the effects of oil price fluctuations on stock returns in Tehran Stock Exchange: wavelet analysis and Markov selection”. Energy Economics Quarterly, 8(29): 60-31.
- Hylleberg, S.; Engle, R. F.; Granger, C. W. & Yoo, B. S., (1990). “Seasonal integration and cointegration”. Journal of Econometrics, 44: 215–238
- Kaboosi, M., (2012). “Investigation of the relationship between exchange rate and interest rate based on Fisher's theory”. Financial Economics and Development Quarterly, 22: 91-114.
- Mallick, S. K. & Sousa, R. M., (2012). “Real effects of monetary policy in large emerging economies”. Macroecon. Dyn. 16: 190–212.
- Mohtsham Dolatshahi, T., (2000). Basics of economics (microeconomics, macroeconomics). Tehran: Khujasteh Publications.
- Montazerzohor, M., (1999). Economics (microeconomics, macroeconomics). Tehran: Tehran University Press, 2535.
- Percival, D. B. & Walden, A. T., (2000). Wavelet methods for time series analysis (Vol. 4). Cambridg university press
- Pourmoqim, S. J., (2015). International Economy (2). Tehran: Samit Publications.
- Qarabaghian, M., (1993). Culture of economics and commerce. Tehran: Rasa Publications.
- Sensoy, A. & Sobaci, C., (2014). “Effects of volatility shocks on the dynamic linkages between exchange rate, interest rate and the stock market: the case of Turkey”. Econ. Model, 43: 448–457.
- Schleicher, Ch., (2002). An introduction to wavelets for economists. Bank of Canada working paper ISSN 1192-5434.
- Shajari, H. & Nasrollahi, Kh., (2008). International finance and the evolution of Iran's currency. Tehran: Shabak Publishing.
- Sharif-Azad, M. R., (2015). “Effective factors on the exchange rate in Iran”. Economics and Management Quarterly, 66: 31-43.
- Shirazi, H. & Nasrallahi, Kh., (2013). “Monetary models and exchange rate forecasting in Iran”. Financial and Economic Policy Quarterly, 4: 5-24.
- Tafzali, F., (2017). Macroeconomics, theory and economic policies. Tehran: Nashrani.
- Tawanayan Fard, H., (2006). Descriptive culture of economics. Tehran: Jahan Computer Publishing.
- Tiwari, A. K.; Mutascu, M. & Andrieș, A. M., (2020). “Decomposing time-frequencyrelationship between producer price and consumer price indices in Romania throughwavelet analysis”. Econ. Model. 31: 151–159.
- Torrence, C. & Compo, G. P., (1998). “A practical guide to wavelet analysis”. Bull. Am. Meteorol. Soc. 79, 61–78.
- Walker, J. S., (2020). A primer on wavelets and their scientific applications. CRC press.
- Zamani Farahani, M., (1992). Money, currency and banking. Publications of the author.