The Impact of Real Exchange Rate Uncertainty on Agricultural Employment in IRAN

The adoption of the flexible exchange rate system by many countries in 1973 produced a significant volatility and uncertainty in exchange rates wich has hsd many impacts on the various economic variables. This paper analyses the impact of real exchange rate uncertainty on the agricultural employment in Iran during 1971-2007. The generalized autoregressive conditional hetroscedasticity approach is applied to measure the exchange rate uncertainty. Error-correction and Co-integration models are used to estimate the short-run dynamics and the co-integrating relations، respectively. The results obtained revealed that the real exchange rate uncertainty has negative impact on agricultural employment in Iran. Variance decomposition indicated that all the changes of agricultural employment variable have been explained by the variable itself during the first period. As this variable share has decreased during the next periods، the other variables share has increased among the variables of model. The impulse response functions also indicated that، the effect of shocks resulted from agricultural employment on the variable itself is significant، but from other variables is insignificant. In order to moderate the negative impact of exchange rate uncertainty on agricultural employment، it is suggested that the government implements policies supporting the production and trade in this sector.