Effects of Exchange Rate Volatility on Added Value of Agricultural Sector in Iran

Document Type : Research Paper

Authors

• A. P
• M. S
• M. M
• M. M

Abstract

In this study, effect of uncertainty due to exchange rate volatility on added value of agriculture sector during years 1978-2011 in Iran was investigated. For this purpose, first fluctuations resulting from exchange rate uncertainty by using GARCH method was calculated. Then, the nature of explanatory variables in the proposed model (Static or unstable variables) using unit root tests was determined. Finally, by the new techniques of convergence and Auto-Regressive Distributed Lag Model (ARDL) the effect of uncertainty due to exchange rate and its deviation from the equilibrium route on added value of agriculture sector were investigated. Results showed that effect of the real exchange rate with interruption on the current real exchange rate is positive and significant at 95 Percent confidence level. In addition, results showed that value added variable (with interruptions) and the price index of agricultural products had positive and significant effect and exchange rate volatility and interruptions of agricultural exports had negative effect on added value of agriculture sector. War was ineffective on the dependent variable. In addition, results showed that presented pattern could reduce added value deviations by 36 percent from its equilibrium route. Also, returning to equilibrium conditions take place in three years. It was proposed that an appropriate currency system along with sound agricultural policy could be pursued to remedy the situation.

Keywords

• Added Value. Agriculture
• exchange rate uncertainty
• Vector Error Correction
• ARDL model

20.1001.1.20086407.1393.6.22.5.7

---