Investigating the Asymmetric Effects of Short- Run and Long- Run Exchange Rates on Gross Domestic Product of Selected Countries; NARDL-PMG Approach

Nazemi, Behroz; Sharifi Renani, Hossein; Daei Karimzade, Saeid

doi:10.22096/esp.2020.43402

Investigating the Asymmetric Effects of Short- Run and Long- Run Exchange Rates on Gross Domestic Product of Selected Countries; NARDL-PMG Approach

Document Type : Original Article

Authors

Behroz Nazemi ¹

Hossein Sharifi Renani ²

Saeid Daei Karimzade ²

¹ PhD student in International Economics, Islamic Azad University, Khorasgan Branch.

² Associate Professor, Department of Economics, Islamic Azad University, Khorasgan Branch.

10.22096/esp.2020.43402

Abstract

The exchange rate fluctuations has both effect on the demand side of the economy as a whole (the net export channel) and the supply side (through the import of intermediate goods channel), it is important to examine its effects on production. It can provide appropriate policy recommendations for managing the country's economic demand. The purpose of this paper was to investigate the asymmetric short-run and long-run effects of the exchange rate on the GDP of selected countries using the NARDL-PMG approach. For this purpose, statistical information of selected countries for the period of 1990-2018 was used. In this study, using ARDL method with non-linear distribution interruptions, positive and negative exchange rate shocks have been extracted and in the form of panel data method, its effects on GDP of selected countries have been investigated. The results showed that the positive and negative shocks of the exchange rate had asymmetric and different effects on the GDP of the countries. The results showed that positive shocks in the exchange rate and an increase in it led to a decrease in GDP and negative shocks and a decrease in the exchange rate led to an increase in the GDP of countries.

Keywords

exchange rate

GDP

asymmetric shock

NARDL-PMG approach

1. Ebrahimi, Ahmad (1993), “The study of the phenomenon of improper regulation of the real exchange rate in Iran, Tehran”, Master's thesis, Faculty of Economics, University of Tehran (In Persian).
2. Elahi, Nasser, Farzin Vash, Assadollah, Kia Al-Husseini, Seyed Zia Al-Din, Khatibi, Manoush, Sarem, Mehdi. (2017). “The role of structural shocks and currency fluctuations on the dynamics of macroeconomic variables”. Iranian Journal of Applied Economic Studies, Vol. 5, No. 18, PP. 197-219 (In Persian).
3. Hosseini Dolatabadi, Seyed Mehdi and Taherifard, Ali (2015), “The effect of positive exchange rate shock on GDP”, Parliament and Strategy, Vol 22, No 81, PP. 171-186 (In Persian).
4. Kazeruni, Alireza and Fashari, Majid (2010). “The Impact of Real Exchange Rate Volatility on GDP (Case Study of Iran)”, Economics and Modeling, 1 (4), PP. 129-156 (In Persian).
5. Kazeruni, Alireza and Rostami, Nasrin (2007). “Asymmetric effect of exchange rate fluctuations on real production and prices in Iran (2002-2001)”. Journal of Economic Research, Vol. 25, No. 2, PP. 196- 177 (In Persian).
6. Kazeruni, Alireza, Salmani Behzad, Fashari, Majid. (2012). “Investigating the effect of foreign exchange system and inflation environment on the degree of exchange rate passage in Iran”. Iranian Journal of Applied Economic Studies, Vol. 1, No. 2. PP. 85-114 (In Persian).
7. Khalili Araghi, M., Rahimzaden Namvar, M. (2019), “The time inconsistency of monetary policies and its effect on the exchange rate fluctuation in Iran”. The Journal of Economic policy, Vol. 11, No. 21, PP. 217-240 (In Persian).
8. Khataei, Mahmoud and Gharbali, Younes (2004), “Investigating the dynamic relationship between exchange rates and GDP in the Iranian economy”, Journal of Planning and Budgeting, Vol. 9, No. 1, PP. 3-25 (In Persian).
9. Koochakzadeh, A., Jalaee, S. (2014). “Effect of Exchange Rate Uncertainty on Economic Growth in Iran”. Quarterly Journal of Economic Growth and Development Research, Vol. 4, No. 16, PP. 20-11 (In Persian).
10. Motahari, M., Lotfalipour, M., Ahmadai Shadmehri, M. (2018). “The Effects of Real Exchange Rate on Economic Growth in Iran: New Findings with Non-Linear Approach”. Quarterly Journal of Applied Theories of Economics, Vol. 4, No. 4, PP. 175-198 (In Persian).
11. Samati, Morteza, Khanzadi, Azad and Yazdani, Mehdi (2010), “Investigating the Hypothesis of Asymmetric Effects of Exchange Rate Shocks on Production Level and Price (Case Study: Iran)”, Money and Economics Quarterly, Vol. 2, No. 4, PP. 35 -57 (In Persian).
12. Tenrancnian, A., Rasekni, S, mostatapour, Y. (2018). “Threshold Effects of Exchange Rate Fluctuations on Value Added of Iran Economy sectors”. Journal of Applied Economics studies Iran, Vol. 7, No. 28, PP. 61-85 (In Persian).