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

Alireza Saadati, Zahra Honarmandi and Samira Zarei

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Exchange Rate Shocks; Export-Oriented Industries; fear of depreciation; NARDL Model. (search for similar items in EconPapers)
JEL-codes: C58 E44 F31 G32 (search for similar items in EconPapers)
Date: 2020-05-20, Revised 2020-06-30
New Economics Papers: this item is included in nep-ara, nep-cba and nep-mac
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