Exchange rate fluctuations are very important in spreading and creating economic shocks. Knowing the effective factors in creating exchange rate instability is very important and can be a guide for economic policy makers. Monetary shocks have been one of the effective f More
Exchange rate fluctuations are very important in spreading and creating economic shocks. Knowing the effective factors in creating exchange rate instability is very important and can be a guide for economic policy makers. Monetary shocks have been one of the effective factors in causing the exchange rate to jump. The main question in this article is to what extent monetary shocks cause overshooting of the exchange rate. Dornbusch model is used to identify structural shocks. For this purpose, the research model has been estimated using the structural vector autoregression (SVAR) technique and seasonal data during the years 1999-2017.The experimental results of the research indicate the positive and significant effect of monetary shocks on the real rate. Therefore, due to the fact that changes in the amount of money cause fluctuations in the exchange rate and the overshooting phenomenon in the exchange rate, it is suggested that the government refrain from creating monetary shocks and that follow the appropriate monetary rule is inspired by Friedman's monetary rule or Taylor's monetary rule based on the limitation of money growth to the extent of economic growth.
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