Determinants of Real Effective Exchange Rate in Iran using Fuzzy Regression

Document Type : Research Paper



Exchange rate has key role in determining the degree of international competition and domestic economic situation, Therefore, investigating  factors affecting the exchange rate will be helpful for trade policies. However, the effect of these factors on exchange rate often associated with ambiguity and uncertainty, so the use of fuzzy regression for estimating the effects of these variables on the exchange rate might be helpful. Because fuzzy regression estimates interval of possible values ​​for coefficient, whereas classical regression estimates only a certain amount for coefficients. The purpose of this study was to determine the factors affecting the real effective exchange rate in Iran using fuzzy regression in the period 2002 to 2010. In this context, the variables productivity growth, government spending, trade policies, oil prices and the currency held by the public are being used as important factors affecting the real exchange rate. According to results productivity growth rates and government spending have positive impact and oil prices, currency held by the public and trade policies have a negative effect on real effective exchange rate. Also, the impact of currency held by the public and oil prices is ambiguous. Hence, the interval estimates of coefficients are used to express the extent of their influence.