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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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  2. Olga Arratibel & Davide Furceri & Reiner Martin & Aleksandra Zdzienicka-Durand, 2011. "The Effect of Nominal Exchange Rate Volatility on Real Macroeconomic Performance in the CEE Countries," Post-Print halshs-00456606, HAL.
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  5. Philippe Aghion & Philippe Bacchetta & Romain Rancière & Kenneth Rogoff, 2009. "Exchange rate volatility and productivity growth: The role of financial development," Post-Print halshs-00754377, HAL.
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  8. Pahlavani, Mosayeb & Wilson, Ed & Valadkhani, Abbas, 2005. "Structural Changes in the Iranian Economy: An Empirical Analysis with Endogenously Determined Breaks," Economics Working Papers wp05-05, School of Economics, University of Wollongong, NSW, Australia.
  9. Magda Kandil, 2004. "Exchange Rate Fluctuations And Economic Activity In Developing Countries: Theory And Evidence," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 29(1), pages 85-108, June.
  10. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
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  12. 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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  15. Marianne Baxter & Alan C. Stockman, 1988. "Business Cycles and the Exchange Rate System: Some International Evidence," NBER Working Papers 2689, National Bureau of Economic Research, Inc.
  16. Bagella, Michele & Becchetti, Leonardo & Hasan, Iftekhar, 2006. "Real effective exchange rate volatility and growth: A framework to measure advantages of flexibility vs. costs of volatility," Journal of Banking & Finance, Elsevier, vol. 30(4), pages 1149-1169, April.
  17. Paresh Kumar Narayan & Russell Smyth, 2004. "Temporal Causality and the Dynamics of Exports, Human Capital and Real Income in China," The International Journal of Applied Economics, Department of General Business, Southeastern Louisiana University, vol. 1(1), pages 24-45, September.
  18. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
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