The Role of Liquidity and Global Uncertainty in Exchange Rate Fluctuations in Iran: a Machine Learning Approach

Articles in Press

Document Type : Research Paper

Authors

Department of Economics, Shiraz University, Shiraz, Iran.

Abstract

While numerous studies have examined the factors influencing the exchange rate in Iran, the assessment of the relative importance and contribution of each of these factors—particularly liquidity and uncertainty—in explaining exchange rate fluctuations has received less attention. This study addresses an important gap in the existing literature by examining the effects of liquidity and various dimensions of uncertainty—including global uncertainty, global economic policy uncertainty, geopolitical risk, energy uncertainty, and oil price uncertainty—on the exchange rate. The study is able to estimate the most important determinants of exchange rate fluctuations in Iran over the period 2012 to 2023 using tree-based ensemble methods and the SHAP (Shapley Additive Explanations) approach. The empirical findings indicate that money supply, with an average importance of 89 percent, is the most influential variable affecting the exchange rate in the Iranian economy. Energy uncertainty (EUI), geopolitical risk (GPR), global uncertainty (WUI), and oil price uncertainty (OPU) are ranked next, each with an average contribution of about 1 percent. According to the results, compared to the money supply, uncertainty plays a less significant role in the formation and persistence of exchange rate fluctuations in the Iranian economy and does not play a decisive role in sustaining these fluctuations.

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Main Subjects

Iranian Journal of Economic Studies

Articles in Press, Accepted Manuscript
Available Online from 24 August 2026

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History

  • Receive Date: 24 June 2026
  • Revise Date: 24 August 2026
  • Accept Date: 24 August 2026

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