Abstract

One of the most important items to select exchange system is to study the effect of Exchange rate volatility on real sector of economy especially on productivity growth. But exchange rate volatility and different exchange systems have different effects on countrys economic system the selection of exchange system is dependent on the condition of the country. Thus, this paper evaluates the effect of exchange rate volatility on productivity growth in Iran with regard to financial development and the data are collected from World Bank during 1979- 2014. By stationarity Phillips-perron test, stationarity of variables is evaluated. Then co- integration and long-run relationship were examined by Johansen and Julius test. Using vector error correction model, short-run volatilities of variables were evaluated in long-run equilibrium path. The results showed that exchange rate volatility had negative relationship with productivity growth and the effect of financial development on productivity growth was positive and significant. Also, the effect of reciprocal exchange rate volatility and financial development on productivity growth was negative and smaller than the effect of exchange rate volatility in extent.

Keywords: Productivity Growth, Exchange Rate Volatility, Financial Development, Johansen and Julius test.

  Download Full Text

References

[1]  Alogoskoufis, George (1994) “On Inflation, Unemployment and the Optimal Exchange Rate Regime”, in andbook of International Macroeconomics, (Editor R. van der Ploeg), Blackwell, Oxford.

[2]  Aghion, P., Bacchetta , P., Ranciere, R. & Rogoff, K. (2009) Exchange rate volatility and productivity growth : the role of financial development, Journal of Monetary Economics, No.56 , 494–513.

[3] Baldwin, R (1989), Growth effects of 1992. Economic Policy, n 9, pp. 247–282.

[4]   Balassa, Bela. (1964). "The Purchasing Power Parity Doctrine: A Reappraisal" Journal of Political Economy, 72:6, pp. 584-59

[5]  Baxter, M., Stockman, A., (1989). Business cycles and the exchange-rate regime. Journal of Monetary Economics 23 (3), 377–400.

[6]   Bolgorian, Meysam, and Ali Mayeli. 2019. Banks’ characteristics, state ownership and vulnerability to sanctions: Evidences from Iran. Borsa Istanbul Review 19: 264–72

[7] Chit, Myint Moe and Judge Amrit,(2009), Non-linear effect of exchange rate volatility on exports: The role of financial sector development in emerging East Asian economies,

[8] De Grauwe, P., Schnabl, G., (2008). Exchange rate stability, inflation and growth in (South) Eastern and Central Europe. Review of Development Economics 12 (3), 530–549.

[9]   Diallo, Ibrahima Amadou, (2015), the Effects of Real Exchange Rate Volatility on Productivity Growth, Eastern European Business and Economics Journal Vol.1, No. 2, (2015): 66-84.

[10] Dickey, D.A., Fuller, W.A., 1979. Distribution of the Estimators for Autoregressive Time Series with a Unit Root. Journal of the American Statistical Association 74, 427-431.

[11]  Dollar, D.,(1992). Outward oriented economies really do grow more rapidly: evidence from 95 LDCs, 1976–1985. Economic Development and Cultural Change 40 (3), 523– 544.

[12] Dubas, J.M., Lee, B.-J., Mark, N.C., (2005). Effective exchange rate classifications and growth. NBER Working Paper 11272.

[13] Engel, R.F., Granger, C.W.J., 1987. Co-integration and error correction: Representation, Estimation and testing. Econometrica 55, 251-276.

[14]    Goldfajn, I., Valdes, R., (1999). The aftermath of appreciations. Quarterly Journal of Economics 114, 229– 262.

[15]  Ghosh,A, Gulde A.M, and WolfH.C, (2003) Exchange Rate

Regimes: Choices and Consequences, MIT Press, Cambridge, MA.

[16]  Hausmann, R ,Gavin ,M , Pages-Serra, C ,Stein, E(1999), financial Turmoiland choice of Exchange rate regime, working paper#400, Inter-American Development Bank, Office of the Chief Economist.

[17]  Husain, A.M., Mody, A., Rogoff, K., (2005). Exchange rate regime durability and performance in developing versus advanced economies. Journal of Monetary Economics 52, 35–64.

[18]   Johansen, S., Juselius, K., 1990. Maximum likelihood estimation and inference on cointegration - with applications to the demand for money. Oxford Bulletin of Economics and Statistics 52, 169–210.

[19]     Johansen, S., 1995. Likelihood-Based Inference in Cointegrated Vector Autoregressive Models. Oxford University Press.

[20]     Kazeruni, Alireza; Nastaran, Rostami. 2007. The asymmetrical effects of exchange rate volatilities on real production and price in Iran (2002-1961). Journal of economic research. NO. 42, 176-196.

[21]     Khataee, Mahmoud and Mosavi Nik Saed Hadi (1387)”Exchange Rate Volatilities Effect on Economic Growth Subject to Financial Market Development Levels”Iranian Journal of EconomicResearch, No 37(10). 1- 19

[22] Khatayi Mahmoud, Mosavi Nik Seyed Hadi. 2008. The effect of exchange rate volatilities on economic growth based on the level of development of financial markets. Economic researches in Iran. No. 37, 1-20.

[23]    Levine, R., Loayza, N., Beck, T., (2000). Financial intermediation and growth: causality and causes. Journal of Monetary Economics 46 (1), 31–77.

[24] Levy-Yeyati, E., Sturzenegger, F., (2003). To float or to fix: evidence on the impact of exchange rate regimes on growth. American Economic Review 93, 1173–1193

[25] Merton, R. & Bodie, Z. (1995) A conceptual framework for analysing the financial environment, in D. B. Crane et al. (Eds.) the Global financial System: A Functional Perspective (Boston: Harvard Business School Press).

[26]    Mussa, Michael, Paul Masson, Alexander Swo-boda, Esteban Jadresic, Paolo Mauro and An-drew Berg. (2000). Exchange Rate Regimes in an Increasingly Integrated World Economy, IMF Occa-sional Paper 193.

[27]  Osterwald-Lenum, M., 1992. A note with quantiles of the asymptotic distribution of the maximum likelihood cointegration rank test statistics: four cases. Oxford Bulletin of Economics and Statistics 54 (3), 461–472.

[28]     Nofersti, Mohammad. 1999. The unit root and cointegration in econometric. Tehran. Rasa service institute publications. First edition.

[29]     Parhizgari, Abozar; Sabuhi, Mahmoud, Mostashari Mohases, Mehrzad, Mehrnoush Mirzayi. 2014. The evaluation of the effect of instability of exchange rate on value-added in agriculture sector in Iran. The researches of agriculture economy. Vol. 6. No. 2. P. 69-94.

[30] Phillips, P.C.B., Perron, P., 1988. Testing for a unit root in time series regression. Biometrica 75, 335-346.

[31]  Razin, A., Rubinstein, Y., (2006). Evaluation of currency regimes: the unique role of sudden stops. Economic Policy 21 (45), 119–152.

[32] Zamani, Fahime, Hossein Mehrabi Basharabadi. 2014. The evaluation of the exchange rate volatilities on trading agriculture products in Iran. Economic researches of agriculture. Vol. 6. No. 2, 13-38.