The Effects of Exchange Rate Volatility on Economic Growth in Iran

Bahram Sanginabadi and Hassan Heidari

MPRA Paper from University Library of Munich, Germany

Abstract: 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.

Keywords: exchange rate volatility; economic growth; bounds test; Iran. (search for similar items in EconPapers)
JEL-codes: F31 O40 O47 (search for similar items in EconPapers)
Date: 2012-06
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Citations: View citations in EconPapers (4)

Published in Actual Problems of Economics 6.132(2012): pp. 430-441

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