The Monetary Behavioral Theory

The main objective of this study was introducing the new term “monetary behavioral”, which is defined as turbulence and excessive reaction in money markets due to very extreme speculation in money and exchange markets, various internal and external factors such as poor management of monetary and banking system, extreme increase of liquidity as well as problems and external pressures such as sanctions and consequently instability, intense turbulence and people's and investors' distrust in the future. Based on Purchasing Power Parity (PPP) theory, the foreign exchange rate has to be adjusted with inflation rate; otherwise, a gap will occur between the real exchange rate and fair exchange rate. Based on PPT theory, this study showed that the fair value of dollar was calculated to be 30000 Rials per U.S. dollar in 2017 considering the mean annual inflation rate of 19% in Iran and 3.6% in the U.S. during the past 39 years. However, given the sharp increase of liquidity in Iran over the past five years, absence of a powerful management of monetary and banking system and possible implementation of severe economic sanctions in the late 2017 and the first five months of 2018, an unexpected growth of dollar value against Rials, even 150000 Rials for each dollar, was observed. Briefly, in This study showed that purchasing power parity, which adopts a long-term and retrospective approach, is not effective anymore in critical situations, and new approaches like monetary behavioral theory, which adopt a short term and prospective approach, are more effective