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Conventional wisdom states that currency depreciation in oil-producing countries are contractionary because demand effects, limited by the prevalence of oil exports priced in dollars, are more than offset by adverse supply effects. Iran, however, has experienced a rapid increase in non-oil exports in the last decade. Against this background, the paper tests whether the conventional wisdom still applies to Iran and concludes that the emergence of the non-oil export sector has made currency depreciation expansionary. The expansionary effect is particularly evident with respect to anticipated persistent depreciation in the long-run. Notwithstanding the varying effects of exchange rate fluctuations on the demand and supply sides of the economy, managing a flexible exchange rate gradually over time towards achieving stability in the real effective exchange rate may strike the necessary balance.

Foreign Exchange --- Investments: General --- Macroeconomics --- Money and Monetary Policy --- Macroeconomics: Production --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Investment --- Capital --- Intangible Capital --- Capacity --- Currency --- Foreign exchange --- Monetary economics --- Exchange rates --- Production growth --- Currencies --- Depreciation --- Real effective exchange rates --- Production --- Economic theory --- Money --- Saving and investment --- Iran, Islamic Republic of