The Impact of the Real Exchange Rate Volatility on Non-oil Exports: The Case of Iran

Abstract

Up to now, the impact of real exchange rate on the non-oil exports of Iran has been mainly on focus. However, the more important aspect of the fluctuations in exchange rate is its degree of volatility which can have profound effect on the non-oil exports. Hence, the main objective of this paper is to investigate the linkage between non-oil exports and the real exchange rate volatility for Iran over the period of 1971-2007. For this purpose, a proxy for the real exchange rate volatility has been estimated by using GARCH model. Then, a conventional exports function has been estimated by Johansenâ s multivariate co-integration approach. The empirical findings reveal that among the explanatory variables, the real exchange rate and its volatility have positive and negative impact on the non-oil exports of Iran respectively. JEL Classification: C22, F14, F33