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Real Exchange Rate Shocks and Export-Oriented Businesses in Iran: An Empirical Analysis Using NARDL Model

Author

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  • Saadati, Alireza
  • Honarmandi, Zahra
  • Zarei, Samira

Abstract

In this paper, the asymmetric and nonlinear effects of the real exchange rate shocks on different export-oriented businesses, i.e. Petrochemical, Basic Metal, and Mining industries stock indexes, in Tehran Stock Exchange is examined. From the policymakers’ perspective, this idea is theoretically interpreted as a "fear of appreciation" hypothesis that refers to the intervention of central banks in foreign exchange markets to restrict currency appreciation rather than depreciation to defend export competitiveness. To this aim, in addition to the main variables, the monthly time series data of the control variables, i.e. inflation, OPEC oil price, and international sanctions, from 2012:01 to 2020:01 are used. Our findings based on the NARDL approach illustrate that not only have exchange rate shocks significant effects on different stock indexes, but these relationships are asymmetric and nonlinear. Moreover, the results have confirmed the fear of depreciations hypothesis in the export-oriented industries, that means the central bank of Iran tends to pursue the “leaning-against-the-depreciation-wind” policy rather than “leaning-against-the-appreciation-wind” one.

Suggested Citation

  • Saadati, Alireza & Honarmandi, Zahra & Zarei, Samira, 2020. "Real Exchange Rate Shocks and Export-Oriented Businesses in Iran: An Empirical Analysis Using NARDL Model," MPRA Paper 101554, University Library of Munich, Germany, revised 30 Jun 2020.
    • Handle: RePEc:pra:mprapa:101554
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    References listed on IDEAS

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    More about this item

    Keywords

    Exchange Rate Shocks; Export-Oriented Industries; fear of depreciation; NARDL Model.;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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