Document Type : Research Paper
Authors
1
, Associate Prof., Department of Business Management, Faculty of Economics and Management and Administrative Sciences, Semnan University, Semnan, Iran
2
Assistant Professor, Department of Management and Economics, Faculty of Financial Sciences, Management and Entrepreneurship, University of Kashan, Kashan, Iran.
Abstract
Linear and Nonlinear ARDL Models
Abstract
Exchange rates, as a key variable in the relationship between domestic and international economies, play a significant role in economic processes. The link between monetary policies and exchange rates, particularly in developing economies, is a complex and challenging issue in macroeconomic literature. This study aims to examine the effects of monetary policies on exchange rates in the Iranian economy, using both the linear Autoregressive Distributed Lag (ARDL) model and the nonlinear Autoregressive Distributed Lag (NARDL) model. The primary innovation of this research lies in the simultaneous application of these two models, especially the NARDL model, which is used for the first time to analyze the asymmetric behavior of exchange rates in response to positive and negative monetary policy shocks in Iran. Quarterly data from 2009 to 2024 are utilized for this analysis, with the interbank interest rate as the monetary policy instrument, alongside control variables such as real GDP excluding oil, the consumer price index, and global oil prices. The ARDL model results indicate that in the long run, the effect of the interbank interest rate on exchange rates is negative and significant, but in the short run, this effect varies depending on the lags. The NARDL model results reveal that the exchange rate reacts asymmetrically to monetary policy shocks, with positive interest rate shocks having a negative impact, and negative shocks having a positive impact on the exchange rate. Furthermore, the control variables have also shown significant effects on the exchange rate.
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