Chapter One:
Research Overview
Chapter One - Research Overview
1-1- Introduction:
One of the goals of the economy of any country is to achieve high employment, and economic policy makers should always consider the reaction of changes in employment to changes in macroeconomic variables (Joyce and Kamas [1], 2003). In Iran, one of the policies to reduce unemployment is to change the real exchange rate. It should be noted that in many empirical studies, the real exchange rate is considered as one of the variables affecting employment, and this effect can be different depending on the type of economy of each country and the type of currency system (Edwards [2], 1989). Considering the importance of employment in Iran's economy and the significant effect of the real exchange rate on this macroeconomic variable, the present research examines the effect of the real exchange rate on employment.
1-2- Description and statement of the problem
With the integration of the global economy and the increasing development of international interactions, countries can no longer ignore the role of the foreign sector of the economy in adopting macroeconomic policies. The increasing convergence of the capital market, after the dismantling of the Bretton Woods system, along with the huge wave of financial liberalization since the 1980s in developed and developing countries, has made attention to the real exchange rate and its changes even more attractive (Preminger and Frank[3], 2007). Real exchange rate changes affect the economy of each country in different ways. This effect can be manifested in the form of changes in the ratio of tradable goods to non-tradable goods, changes in the trade balance, and changes in the exchange relationship between goods. Therefore, the real exchange rate can be considered as an asset price and also have significant effects on the supply and demand side of the economy. The real exchange rate also affects the allocation of resources, economic growth, employment and inflation. All these factors play a decisive role in the economic performance of each country (Hua [4], 2007). Despite the vast literature on the real exchange rate, as well as the experimental work done on the impact of the real exchange rate on macroeconomic variables in developing countries, the impact of the real exchange rate on employment has received less attention. Therefore, in this thesis, the effect of the real exchange rate on the changes in Iran's employment is examined. Some of the most important currencies in Iran are US Dollar, Euro, Pound Sterling, Swiss Franc and Japanese Yen. Just as banknotes and coins form a part of a country's money, therefore currency is not limited to foreign banknotes and coins and includes bank checks, remittances, traveler's checks, promissory notes, and promissory notes.
Currency rate: the price (rate) of each unit of exchange of one country's currency with another country's currency, gold, or special right of withdrawal is called exchange rate. These exchanges are generally carried out in cash or promissory notes in the foreign exchange market. At any moment, the real rate of each currency is determined by the relevant supply and demand in the market. Supply and demand, in turn, depend on the deficit or surplus of each country's balance of payments, the demand for money to pay obligations, and the expectations of future rate changes. If there is no government control over the currency market, then there will be a complete system of floating exchange rate.
In a completely floating system, there is no need for gold and currency reserves, because the exchange rate will be adjusted by itself until supply and demand are equal.) Theory of purchasing power parity. (According to the regulations of the International Monetary Fund, which was adopted in Bretton Woods after the Second World War, the nominal value of the exchange rates of currencies was fixed against the dollar, while a fluctuation of -1 and +1 percent was allowed. The dollar itself was not subject to this limit, because the United States of America government was committed to pay a fixed rate of 35.0875 dollars for an ounce of gold at any time.After that, some important currencies were allowed to fluctuate, but in order to maintain these changes within a certain range, they had to follow the exchange control regulations (Lawrence and Montil, 2005).
Real exchange rate: It is a real phenomenon that evaluates the relative price of two goods; It is a measure that shows the level of economic competitiveness of a country in global markets. This variable is defined as the ratio of the price of tradable goods to the price of non-tradable goods. Although this definition is useful from a theoretical point of view, it seems very difficult to calculate it due to the lack of access to information. In this sense, based on the old theory of purchasing power parity, it is expressed in the form of an adjusted nominal rate - through the general level of prices - abroad and domestically (Lawrence and Monteil, 2005). It is used by the consumer of two commercial parties. This theory states that the foreign exchange rate is obtained from the ratio between the real purchasing power of the two countries' money. In this case, the real exchange rate is obtained from the following relationship.
(1-1)
where[5]RER, real exchange rate; ER [6], the nominal exchange rate, the general level of foreign prices (dollars) and the general level of domestic prices as an approximation of the price of tradable and non-tradable goods.
1-5- Research question
Does the decrease in the real exchange rate have a negative and meaningful effect on employment in Iran?
1-6- Research hypothesis
The decrease in the real exchange rate has a negative and significant effect on employment in the country of Iran.
1-7- research structure
In the first chapter, he discussed the generalities of the research became. In the second chapter, the literature related to the real exchange rate and the effect of the real exchange rate on employment is examined. The third chapter introduces exchange rates, currency developments in Iran, employment developments in Iran and the research method. In the fourth chapter, the models used in this research and the estimation method are presented. In the fifth chapter, a summary of the research process, results and suggestions are presented.
Chapter Two:
Review of the subject literature
Chapter Two: Review of the subject literature
2-1- Introduction
Achieving a high level of employment is one of the most important economic goals in any country. For this reason, the effect of macroeconomic variables on employment is one of the main topics of concern for economists and economic policy makers. The real exchange rate is one of the variables affecting the level of employment. The effect of the real exchange rate on employment can be different depending on the type of economy of each country and the type of currency system (Joyce and Kamas [7], 2003).
The exchange rate and its changes affect the total demand through exports, imports, investment and demand for money, as well as the supply of the economy through the cost channel of imported intermediate goods. Therefore, the outcome of these two effects on production and employment depends on the initial conditions of the economy. In general, in the goods market, an increase in the real exchange rate will cause imported goods to become more expensive and export goods to become cheaper, and as a result, there will be an increase in the demand for domestic goods.
On the supply side, it can be argued that in developing countries, an increase in the real exchange rate (decrease in the value of the national currency) will cause an increase in the cost of importing intermediate goods (imported inputs) and as a result Imported production inputs become more expensive, thus causing an increase in production costs, which is called imported inflation.