2SLS

In this paper, we will review the foreign exchange market and will try to extract an exchange market pressure and an intervention index for Iran by following the Weymark (1995) approach to evaluate the Central Bank of Iran’s exchange rate policy during 1368:Q1 to 1391:Q3. The estimation method employed, is the econometric technique known in the literature as the Two-Stage Least Squares (2SLS).The exchange market pressure’s mean value of 0.062 provides evidence that depreciating pressure remained dominant over the entire sample period. Also, the mean value of the intervention index is 0.44, indicating that the foreign exchange reserve and exchange rate changes absorbed forty-four and fifty-six percent of the pressure, respectively. Otherwise the results of the paper show that on an average there was a downward pressure on Iran’s currency and the Central Bank of Iran pursued an active intervention policy. Specifically, as the intervention index shows, the Central Bank of Iran used both exchange rate and foreign exchange reserve interventions for restoring the foreign exchange market to equilibrium levels, a policy known as the managed float exchange rate regime.