چکیده:
This paper investigates the effect of Exchange Rate Volatility (ERV) on Imports of capital goods in Iran’s Industry for the period of 1979-2012 In terms of sanctions. In the first stage, we consider a special case of GARCH family model to measure ERV. In the second stage, we employed the OLS approach for estimating the import demand function for Iran’s industry sector, so that ERV has entered in the model as an explanatory variable. The other explanatory variables considered for multivariate estimation include the value of production of industrial goods and relative prices index of Imports of capital goods. The result of Engle-Granger Co-integration test shows a long term relationship between the imports of Iran's industrial goods, ERV and other variables. The findings suggest that ERV has negative impact on Imports of capital goods in Iran’s Industry. In addition, the effect of relative prices index is negative, but the effect of production of industrial goods on the Imports of capital goods is positive.
خلاصه ماشینی:
KEYWORDS: Exchange Rate Volatility, Imports of Capital Goods, GARCH Model, Iran’s Industry, Engle-Granger Co-Integration.
However, despite a large body of the literature, few papers have written about effect of exchange rate volatility on trade flows between countries especially volume of imported industrial goods.
This paper focus on the effect of Exchange Rate Volatility (ERV) on Imports of capital goods in Iran’s Industry for the period of 1979-2012 In terms of sanctions.
In the first stage, we use a GARCH type model to generate the volatility of exchange rates and in the second stage, we estimate demand function of imports of capital goods in Iran’s Industry using Ordinary Least Square (OLS) technique, by replacing the variable of unobserved volatility with the measured proxy.
Therefore, the main focus of present paper is to derive statistically valid estimates for demand function of imports capital goods in Industry sector of Iran in sanctions period with a generated variable for volatility of exchange rates, so that a GARCH type model is used to measure risk in exchange rates.
Byrn et al (2008) in a research considered the impact of exchange rate volatility on the volume of bilateral US trade (both exports and imports) using sectoral data and use of sectoral industrial price indices.
The empirical results indicate that volatility in exchange rates affects on Iran's industrial imported capital goods negatively and this effect is statistically significant.