Investigating the effectiveness of monetary policy on economic uncertainty in different exchange rate regimes

Articles in Press

Document Type : Original Article

Authors

Mohammadtaher Ahmadishadmehri ¹

maryam zabihi ²

Mohammad Ali Falahi ³

¹ Ferdowsi university

² p hd. student

³ Ferdowsi University of Mashhad

https://doi.org/10.22067/mfe.2026.91882.1505

Abstract

Currently, the Iranian economy is facing significant challenges due to uncertainties arising from severe exchange rate fluctuations. Therefore, implementing appropriate monetary policies may lead to a reduction in uncertainties and their consequences in the Iranian economy. The aim of this study is to investigate the effectiveness of monetary policy on reducing economic uncertainty arising from exchange rate fluctuations in high and low exchange rate regimes with monthly data from April 2012 to March 2013 using a threshold approach. The results showed that contractionary monetary policy using the interbank interest rate instrument, especially in a high exchange rate regime, significantly reduces economic uncertainties caused by exchange rate fluctuations. Threshold regression estimation showed that expansionary monetary policy (by increasing liquidity) does not have a significant effect on uncertainty in low exchange rate conditions, but it increases uncertainty in high exchange rate conditions. The results of this study emphasize that rising inflation and gold prices are two important factors in increasing economic uncertainties caused by exchange rate instability. Policy implications of this study may contribute to the effectiveness of monetary policy tools in different exchange rate regimes in reducing economic uncertainties.

Keywords

monetary policy

uncertainty

exchange rate

threshold regression

Subjects

• Financial monetary economy

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