Does Agriculture Price Index Respond to Exchange Rate Fluctuations in Iran?

Subject Areas : Decision-making

محمد  عبدی سیّدکلایی ¹ (استادیار گروه اقتصاد دانشگاه مازندران)
امیر منصور  طهرانچیان ² (دانشیار گروه اقتصاد دانشگاه مازندران)
احمد  جعفری صمیمی ³ (استاد گروه اقتصاد دانشگاه مازندران)
سیّد مجتبی  مجاوریان ⁴ (دانشیار گروه اقتصاد کشاورزی دانشگاه علوم کشاورزی و منابع طبیعی ساری)

Received: 2016-07-26 Accepted : 2017-01-01 Published : 2017-12-01

Keywords: exchange rate, agriculture sector, MGARCH method, Iran&rsquo, s economic,

Abstract :

Since some raw materials, semi manufactured, intermediate and capital goods in agricultural sector are imported, the exchange rate fluctuations can affect the cost price of products in this sector. Recently, we are facing considerable fluctuations in exchange rate that has an important impact on all sectors including the agriculture. As a result of an increase in import prices in agricultural raw materials, the exchange rate fluctuates. In other words, this relationship is strengthened by lower domestic supply due to the stimulation of the exports of agricultural products induced by an increase in exchange rate. The present study deals with the impact of exchange rate fluctuations on agricultural price index in Iran using MGARCH method. The results show that the past shocks of exchange rate have a positive impact on agriculture price index at the 1% significance level. Moreover, despite the fact that the current fluctuations of agriculture price index do not relate to its past fluctuations, the past fluctuations of exchange rate have a positive impact on current fluctuations of exchange rate.

References:

Devereux, M. B., & Engel, C. (2002). Exchange rate pass-through, exchange rate volatility, and exchange rate disconnect. National Bureau of Economic Research (NBER) Working Paper, No.8858.

Hara, N., Hiraki, K., & Ichise, Y. (2015). Changing exchange rate pass-through in Japan: Does it indicate changing pricing behavior? Bank of Japan Working Paper, No. 15-E-4.

Heidary, H., & Mollabahrami, A. (2011). Portfolio optimization using multivariate GARCH models: Evidence from Tehran stock exchange. Financial Research, 12(30), 35-56.

Najafi, B. (2003). The role of agriculture growth on Iran’s economic growth (1959-1996). First Conference on Agriculture and National Development, 8-9 December, Tehran, Iran (pp. 165-185).

Obayelu, A. E., & Salau, A. S. (2010). Agricultural response to prices and exchange rate in Nigeria: Application of co-integration and Vector Error Correction Model (VECM). Journal of Agricultural Sciences, 1(2), 73-81.

Safari, S., Rahmani, M., & Ahmadi, H. (2014). Effect of exchange rate volatility on agricultural exports (According to Agricultural General Policies). Journal of Macro and Strategic Policies, 2(5), 97-109.

Savoie-Chabot, L., & Khan, M. (2015). Exchange rate pass-through to consumer prices: Theory and recent evidence. Bank of Canada Discussion Paper/Document d' analyze, No. 2015-9. Available on: http://www.bankofcanada.ca/wp-content/uploads/2015/10/dp2015-91.pdf.

Sek, S. K., & Kapsalyamova, Z. (2008). Exchange rate pass-through and volatility: Impacts on domestic prices in four Asian Countries. Munich Personal RePEc Archive (MPRA) Paper, No. 11130. Available on: https://mpra.ub.uni-muenchen.de/11130/1/MPRA_paper_11130.pdf

Souri, A. (2013). Econometrics with application of Eviews 8 & Stata 12. Farhangshenasi Press, Tehran.

Su, W., & Haung, Y. (2010). Comparison of multivariate GARCH models with application to zero-coupon bond volatility. Unpublished thesis, Lund University, Department of Statistics, Lund, Sweden.

Xu, M., & Orden, D. (2002). Exchange rate effects on Canadian/U.S. agricultural prices. Annual meeting of the American Agricultural Economics Association, Long Beach, California, July 28-31.

Yeboah, O. Shaik, S., & Allen, A. (2009). Exchange rates impacts on agricultural inputs prices using VAR. Journal of Agricultural and Applied Economics, 41(2), 511 -520.