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The Effects of Exchange Rate Volatility on Economic Growth in Iran

  • Sanginabadi, Bahram
  • Heidari, Hassan

This paper investigates the effects of exchange rate volatilities on economic growth of Iran over the flexible exchange rate regime period (1988:Q1 2007:Q4). We use generalized autoregressive conditional heteroscedasticity (GARCH) family models to generate time varying conditional variance of exchange rate as a standard measure of exchange rate volatility. We also use the autoregressive distributed lag (ARDL) bounds test approach to level relationship as proposed by Pesaran et al. (2001). Our results show a significant relationship between Iranian growth volume and real exchange rate volatility. The long run results of ARDL model show that the effect of exchange rate volatility on economic growth is negative. ECM estimate shows that approximately 22% of disequilibria from the previous period's shocks converge back to the long run equilibrium in the current period.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 52406.

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Date of creation: Jun 2012
Date of revision:
Publication status: Published in Actual Problems of Economics 6.132(2012): pp. 430-441
Handle: RePEc:pra:mprapa:52406
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  15. Aliyu, Shehu Usman Rano, 2009. "Impact of Oil Price Shock and Exchange Rate Volatility on Economic Growth in Nigeria: An Empirical Investigation," MPRA Paper 16319, University Library of Munich, Germany, revised 10 Jun 2009.
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