Analyzing the Relationship between Macroeconomic Variables and Depreciation of National Currency in Iran: A Quantile Regression Approach with an Emphasis on the Rates of Bank Interest

Khajeh Mohamad Lou, Ali; Bagerzadeh, Ali

doi:10.22034/jifb.2020.225931.1191

Analyzing the Relationship between Macroeconomic Variables and Depreciation of National Currency in Iran: A Quantile Regression Approach with an Emphasis on the Rates of Bank Interest

Document Type : Original Article

Authors

Ali Khajeh mohamad lou ¹

Ali Bagerzadeh ²

¹ PhD Candidate, Department of Economics, Payam e Noor University, Tehran, Iran

² Associate Professor, Department of Economics, Khoy Brach, Islamic Azad University, Khoy, Iran

https://doi.org/10.22034/jifb.2020.225931.1191

Abstract

Depreciation of national currency has been one of the most important issues in Iranian economy throughout the recent years. The government has always tried to maintain stability and control this macroeconomic variable. One of the most important aims for the central banks all around the world is to preserve the value of the national currency; hence, they must implement proper policies that do not result in reducing the purchasing power of national currency. Alongside economic enhancement, the value of currency could be appreciated in regard to the relations between such variables as GDP, inflation, employment rates, and etc. Accordingly, the present study using a series of data in the period of 1973 to 2018 and applying the quantile regression investigates the effect of some macroeconomic variables such as bank interest rate, inflation, and GDP on the depreciation of currency in Iranian economy. The results show that bank interest rates and inflation have a positive and significant effect and GDP has a negative and significant effect on the depreciation of the national currency. Therefore, it is necessary for policymakers to help increase national production in the long run by controlling the real rates of interest in the banking system. It is obvious that increasing production will enhance the value of the national currency over time. Thus, governments can achieve the main goal of the economy that is economic growth.

Keywords

Inflation

Real Interest Rate

Deregulation and Depreciation of Currency Value

Gross Domestic Product

Quantile Regression