Asymmetric Effects of Exchange Rate on the Value Added of Industrial Sector in Iran: Evidence of Non-linear Co-accumulation of NARDL

Abstract

The exchange rate is one of the most important macroeconomic variables that affects different sectors of the economy from various aspects. Due to the considerable impact of industrial development on the country's economic development, this research attempts to evaluate the asymmetric effect of the exchange rate on the value added of the industrial sector for the period of 1380:1 - 1400:4, using the NARDL method. The results of the estimation show that the effect of the exchange rate on the value added of the industrial sector is asymmetric, such that an increase in the exchange rate affects the value added of the industrial sector differently from a decrease in the exchange rate. The effect of the exchange rate in the long term is such that the positive changes in the exchange rate strengthen the value added of the industrial sector, and the decrease in the exchange rate does not affect it. Therefore, the economic policymaker should abandon exchange rate suppression as an inflation control policy and allow the exchange rate to be determined based on market forces.

Keywords

• asymmetric effects
• value added
• industry sector
• economic growth
• non-linear approach
• exchange rate uncertainty.