Investigating the asymmetric effects of exchange rate fluctuations on the gross domestic product with the quantile regression approach, a case study of Iran

Subject Areas : Computational economics

Negin Rahimi ¹ (PhD student, Department of Economics, Tabriz Branch, Islamic Azad University, Tabriz, Iran.)
roya aleemran ² (Associate Professor, Department of Economics, Tabriz Branch, Islamic Azad University, Tabriz, Iran)
Hossein Panahi ³ (Professor of Economics, Tabriz University, Tabriz, Iran)
Hossein Asgharpur ⁴ (Professor of Economics, Tabriz University, Tabriz, Iran)

Received: 2024-02-06 Accepted : 2024-06-22 Published : 2024-08-06

Keywords: Asymmetric effects, , , , , Exchange rate, , , , , GDP, , , , , Iran, , , , , Quantile regression,

Abstract :

Extended Abstract Purpose One of the most important debates and challenges in macroeconomics is the effects of exchange rate fluctuations on macroeconomic variables. Because exchange rate fluctuations affect the demand of the entire economy through imports; Export and demand of money and change in the foreign exchange reserves of the central bank, and the supply side of an economy affect the cost of imported intermediate goods channel, so the result of these two effects on production depends on the initial economic conditions of the country. Exchange rate impulses are of particular importance due to their adverse effects on the performance of economic variables and economic stability, because they cause uncertainty in the relative price trend, growth in production costs, decrease in profits, increase in risk in production, disruption in decision-making processes and deprivation of the ability to plan and The motivation to invest in economic activities is reduced and due to the data communication in economic activities, production in all economic activities is subject to the same or different degrees of negative effects of the exchange rate. Exchange rate is considered a key variable in the economy of any country, and how it affects other economic variables, including GDP, is one of the important challenges in macroeconomics. Exchange rate fluctuation as a sign of instability and uncertainty affects all important economic variables. Objective: In this regard, the main goal of this research is to investigate the asymmetric effects of the exchange rate on the gross domestic product in the selected country of Iran. Methodology For this purpose, in this research, seasonal time series data of Iran's economy during the period (2006-2020) and in the framework of econometric models have been analyzed using the quantile regression method. Finding Considering the importance of the issue in policy making and the possibility of influencing production through the exchange rate, it is therefore necessary for the government in economic planning to the conditions of recession and economic prosperity of the country. and consider more monitoring of the money market and reducing the level of fluctuations and currency shocks caused by speculation in order to increase the country's stability and stability. Exchange rate fluctuations are effective on the country's production and demand growth and some other variables; In the way that today the discussion is about the optimal amount of fluctuations. Therefore, the choice of foreign exchange policies according to the economic conditions, in such a way as to lead to the establishment of a suitable exchange rate system, can not only be a way to achieve growth and development, but in turn, it also affects other macro factors will be. The distinction of this article is with the studies done in the estimation method and scope of the time and place period and in the conditions of economic stagnation and prosperity. As mentioned in the rest of the article, many studies have been conducted to investigate the effects of exchange rates on production in Iran, regardless of asymmetry. The asymmetric effects of currency shocks, in addition to creating instability and economic impulses, can simultaneously and intermittently affect society in other dimensions of society, such as decreasing trust and increasing corruption and bribery. In these two and a half decades, the economy has faced many monetary expansions and inflation and currency shocks. Governments are interested in identifying appropriate solutions to achieve macroeconomic goals. One of the most important macro goals is production at the level of full employment and stability and economic growth. Given that the exchange rate and shocks from it are one of the most important factors affecting production, therefore, the empirical knowledge of economic officials on the relationship between currency shocks and production is of great importance in policy making. The importance of this becomes more apparent when the government or economic officials want to make the right decision in business periods and in accordance with exchange rate fluctuations. The results showed that value has a symmetrical effect on production. Currency values and the ratio of capital creation to gross domestic product in several different cases (quartiles) and deciles have a positive and significant effect on production, and it is possible to increase investment and decrease the value of the national currency in Iran. The effect of the variables of capital formation ratio on GDP, the degree of openness of the economy, the consumer price index on production in different quantiles (quartiles) and deciles is not asymmetric on production, so that in different quantiles of production (recession and economic prosperity), the reaction of production to these variables, Although They are different in appearance, but there is no statistically significant difference. Therefore, economic policy makers can use currency policies to influence production regardless of the issue of asymmetry in different business periods (recession and prosperity). Conclusion Experimental findings showed that the consumer price index and the degree of openness of the economy had a negative and significant effect on production in different quantities. Therefore, economic policy makers can control inflation in order to increase production. Experimental evidence showed that although the effects of the variables of capital formation ratio on GDP and the degree of openness of the economy and the consumer price index and exchange rate on production were significant and their coefficients were slightly different in different quantiles. But the tests of asymmetry of the coefficients of the variables It showed that the effects of all variables on production are not significantly different, in other words, the effects of the variables on production were symmetrical.