The main purpose of this paper is theoretically to design the optimal intervention in the foreign exchange market in Iran, which has not been investigated by previous studies. The economic fundamentals are strongly affected by the optimal foreign exchange intervention, the consistency of foreign exchange intervention with other policies and political authorities' beliefs about the intervention as a dependent policy instrument. The used approach in this paper is a nonlinear dynamic continuous-time stochastic model. The result shows that the optimal foreign exchange intervention depends on the economic objectives of policy authorities, current and expected future exchange rate.
JEL Classification: C61, C62, E61, E63