Investigation the Effects of Exchange Rate Fluctuations on the Sub-Sectors Value Added in Iran

Document Type : Research Article

Authors

1 Ph.D. Students, Department of Economics, Aligudarz Branch, Islamic Azad University, Aligudarz, Iran.

2 Assistant Professor, Department of Economics, Faculty of Economic and Adminstrative Science, Arak University, Arak, Iran

3 Assistant Prof Professor, Department of Economics, Faculty of Humanities, University of Ayatollah Borujerdi, Arak, Iran

Abstract

According to the expansion of trade and the dependence of the production chain in economic subsectors on international trade, exchange rate fluctuations can have a great effect on the international trade and, consequently, on the value added of economic subsectors. Therefore, the main purpose of this study is to investigate the relationship between exchange rate fluctuations and value added of economic subsectors in Iran. For this purpose, the time series data for three main economic sectors and 12 selected subsections in the period 1971-2017 have been used. To estimate the coefficients, first the exchange rate fluctuations are calculated by TV-GARCH method and the total demand shocks is extracted using the Hedrick-Prescott filter and then the ARDL model is applicated to estimate the short and long run coefficients. The results show that exchange rate fluctuations follow a model with time varying coefficients. Exchange rate fluctuations in the short and long term have a negative and significant relationship with industrial value added, exchange rate fluctuations have no significant relations with value added of the service sector, and in the short and long term have a positive and significant relationship with value added of the mining sector. Also, the relationship between exchange rate fluctuations with some industrial subsectors are not compaitable with theoretical literature, for example food and beverage industries have a positive and significant realtions with exchange rate fluctuations in short and long run. Furthermore, chemical subsector value added in short have a significant negative realtinship with exchange rate fluctuations but insignificant in long run.

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