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Evaluation of the Existence of Intrinsic Bubbles in the Non-Official Exchange Rate
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Ali Taiebnia *1   , Azadeh Akhtari1 , Mohsen Mehrara1 |
| 1- Faculty of Economics, University of Tehran |
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Abstract: (1190 Views) |
| The purpose of this paper is to investigate the existence of intrinsic bubbles in the non-official exchange rate of the USD/IRR and the causes of these bubbles and determine the intervals of their occurrence to adopt appropriate policies at the macro level to reduce these bubbles. Intrinsic (endogenous) bubbles are developed by creating expectations that the foreign currency will be valuable in future periods relative to other assets and overvaluing the foreign currency in this period due to changes in the fundamental factor affecting the exchange rate. Speculation bubbles, which are based on expectations of an increase in the exchange rate and are formed by the increase in demand for foreign currency in this period, with the motivation of making a profit in future periods, are quite different. From a methodological point of view, there is an intrinsic bubble when the estimated non-official fundamental exchange rate and the estimated non-official exchange rate do not match. The findings of this paper indicate that from June 2015 to the end of March 2016, there was an intrinsic bubble in the non-official exchange rate due to the decline in oil revenues. Also, from February 2018 to September 2018, a positive intrinsic bubble was observed in the non-official exchange rate. The reason for the intrinsic bubble of this period was the budget deficit and the supply of cheap gold coins to cover the deficit, which rooted in fears of a sharp decline in oil export revenues due to comprehensive US sanctions, implementation of currency control policy, and creation of cautious demand for the dollar. But when the two rates coincide, there is no intrinsic bubble. In this case, there is a speculation bubble caused by oil and banking sanctions. |
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Full-Text [PDF 1506 kb]
(509 Downloads)
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Type of Study: Empirical Study |
Subject:
Money and Interest Rates (E4)
Received: 2021/01/13 | Accepted: 2021/05/17 | Published: 2021/09/28
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