Investigating the Short- run and Long-run Causality Relationship between the Exchange Rate Regime and the Real Exchange Rate Misalignment in the OPEC Countries

Real exchange rate misalignment means that the real exchange rate deviates from its equilibrium level and is the cause of many domestic and global economic problems. This index is considered as an important indicator in foreign competition and in case of adopting an inappropriate exchange rate regime; it may create economic instability and affect economic performance. This issue is important in countries with oil resources due to the special structure of their foreign trade. Therefore, the purpose of this study is to investigate the short-term and long-term causal relationships between the exchange rate regime and the real exchange rate misalignment in the OPEC countries. Therefore, using panel data during the years 2020-2000 and cointegration approaches, long-term and short-term causal relationships between these variables have been investigated. The results show that in the short run, the causal positive and significant relationship has been obtained from the real exchange rate misalignment to the exchange rate regime; In other words, higher the real exchange rate misalignment, the more the monetary authority intervenes in the market to move the exchange rate towards greater stability and minimize fluctuations. In the long run, the causal relationship between the exchange rate regime and the real exchange rate misalignment is negative and significant. This means that as the exchange rate regime moves towards more stability, the real exchange rate misalignment decreases. In other words, the type of exchange rate regime in the long run can lead to the formation of market expectations and, consequently, increase or decrease imbalances.