On The Comparison between Effect of Foreign Exchange Rate and its Volatility on Industrial Export: Application of GARCH Method

In this paper, the effect of real exchange rate and its volatility on industrial export has been studied. For this purpose, first conditional variance of exchange rate volatility is estimated with GARCH method and with using statistical information relating to the exchange rate in Iran for 1977-2008. Afterward, distributed lag regression of industrial export with using Koyck transformation was transformed to an auto regressive model. Then, real exchange rate coefficients and its volatility were estimated with ordinary least squares method. Depending on our finding, industrial export in Iran more affected to real exchange rate volatility in compared to real exchange rate. In result, increases in real exchange rate volatility reduce volume of industrial export. Instead effect of real exchange rate on export of this section statistically is insignificant. Managing real exchange rate, especially through control of inflation besides other supporting policy is from the political recommendations of this paper.

Keywords:

Real Exchange Rate , Real Exchange Rate Volatility , Industrial Sector Export , GARCH Method