The Effect of Consumer Taste on the Real Exchange Rate in Iran's Economy

Document Type : Scientific paper

Authors

1 PhD Student, Department of Economics, Firuzkuh Branch, Islamic Azad University, Firuzkuh, Iran

2 Associate Professor, Department of Economics, Firuzkuh Branch, Islamic Azad University, Firuzkuh, Iran

3 Associate Professor, Department of Accounting, Firuzkuh Branch, Islamic Azad University, Firuzkuh, Iran

4 Assistant Professor, Department of Economics, Firuzkuh Branch, Islamic Azad University, Firuzkuh, Iran

Abstract

Several factors such as productivity, per capita income, and oil income effective on the real exchange rate. In addition to examining the factors mentioned above, this article examines the change in taste of Iranian consumers from domestic to foreign goods and its effect on the real exchange rate. For this purpose, a theoretical model of consumer behavior, which is a utility function including domestic and foreign goods, has been presented and linked to the real exchange rate. Then, using time series regression with the implicit trend and state space technique, the effect of taste on the real exchange rate has been estimated dynamically during the years 1974 to 2021. The result of the estimation shows that the effect of taste has dynamically reduced the real exchange rate so that the width from the regression's origin has decreased yearly. Also, the effect of productivity and per capita income on the real exchange rate is significant, but the effect of oil income is not significant. The practical results show during the last 47 years, the tastes of the Iranian people have tended to consume foreign commercial goods with a mild trend, and this has been one of the causes of the real value of the national currency.

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Main Subjects

References

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Macroeconomics Research Letter
Volume 17, Issue 36
December 2022
Pages 67-98

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History

  • Receive Date: 10 May 2023
  • Revise Date: 09 November 2023
  • Accept Date: 12 November 2023

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