The Rial-Dollar Exchange Rate and Purchasing Power Parity Theory

Mohsen Bahmani Oskooee, Sahar Bahmani


Since the 1979 Islamic Revolution in Iran, Iranian currency has depreciated from 70 rials per dollar to as low as some 36000 rials per dollar. Has this movement followed the path predicted by the well-known Purchasing Power Parity (PPP) theory? In this paper we show that the answer is in the affirmative and the dominating factor causing the decline is domestic inflation. Following the theory, we predict a rate of almost 47000 rials to the dollar.

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