Sharif Digital Repository

We extend the work of Chari et al. (2007) to Iran’s economy institutions and introduce two additional wedges—the trade wedge and the oil wedge. The measured trade wedge value is regressed on nominal exchange rate, and thus we decompose the measured trade wedge into two components. One component represents the effect of nominal exchange rate on trade barriers and the other is representative of the effect of international sanctions in trade barriers. Then we evaluate the contribution of these two components of the trade wedge to the macroeconomic fluctuations in Iran from 2012 to 2014. Our results suggest that the trade wedge is crucial to account for the behavior of imported intermediate...