How can Iran’s black market exchange rate be managed?
) (University of Wollongong) Amin Reza Kamalian (University of Sistan and Baluchestan, Iran) Majid Nameni (President’s Department of Strategic Planning and Control, Iran) Abstract The Iranian currency (rial) depreciated on average 12.2 per cent per annum against the U.S dollar during the period 1960-1998 but, despite continued two-digit rates of inflation, the rial has witnessed only a meagre 1.7 per cent fall in its value in the post 1998 era. This paper examines this perplexing issue by identifying the major long-run determinants of the black market exchange rate. This paper uses the multivariate cointegration test, a threshold regression model and annual time series data (1960-2008) to determine exactly at what exchange rate the effect of relative prices on the exchange rate has been subject to an asymmetry adjustment process. We found that the relative CPIs in Iran and the U.S., total stock of foreign debt and the price of crude oil are the major long-run determinants of the black
