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Effect of Exchange Rate and Exchange Rate Uncertainty on Domestic Consumption of Iran

Author

Listed:
  • Mohseni Zonouzi, Seyed Jamaledin

    () (Assistant Professor of Economics, Urmia University)

  • feizi, Soleiman

    () (Assistant Professor of Economics, Urmia University)

  • Mosavi, Akram

    () (M.A. in Economics, Urmia University)

Abstract

The main objective of this study is to investigate the effect of exchange rate and exchange rate uncertainty on domestic consumption in Iran during 1988q2-2015q1.Therefore, GARCH method is used to estimate the exchange rate uncertainty and the Bonds test approach to ARDL models is used to analyze the existence of long-run relationship, and the Vector Error-Correction model is used to analyze the short-run deviations of variables from their long-run equilibrium values. The results indicate that the exchange rate has direct significant long run and short run effect on the consumption, but exchange rate uncertainty has indirect significant effect on the consumption in Iran. Positive relationship between exchange rate and consumption confirms the exchange rate path theory in Iran. Negative relationship between exchange rate uncertainty and consumption confirms absorption theory in Iran. The results suggest monetary authorities in Iran to adopt appropriate exchange policy for decreasing exchange rate uncertainties. Due to insignificant short run and significant long run effect of government expenditure on consumption, it is suggested to adopt managed government expenditure growth rate in mid-term program.

Suggested Citation

  • Mohseni Zonouzi, Seyed Jamaledin & feizi, Soleiman & Mosavi, Akram, 2017. "Effect of Exchange Rate and Exchange Rate Uncertainty on Domestic Consumption of Iran," Quarterly Journal of Applied Theories of Economics, Faculty of Economics, Management and Business, University of Tabriz, vol. 4(3), pages 195-214, November.
  • Handle: RePEc:ris:qjatoe:0087
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    More about this item

    Keywords

    Aggregate consumption; Exchange rate uncertainty; Exchange rate; GARCH; ARDL;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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