The impact of exchange rate volatility on bilateral trade between Iran and Venezuela

Exchange rate and national income of countries trading with each other are among the most important factors affecting each country's trade. Considering the political and economic ties between Iran and Venezuela in recent years, the goal of this paper was to investigate the effect of exchange rate volatility on exports of Iran to Venezuela. Data used in this research include annual data for the period of years 1362-1392. The uncertainty variable of exchange rate is calculated through the residuals of generalized auto-regressive conditional heteroskedasticity (GARCH) model, while autoregressive distributed lag (ARDL) and error correction model (ECM) are applied. The results indicate that the uncertainty coefficient of exchange rate is significant and negative in the short-run for exports model. However, in the long-run, it has no significant effect on exports. Also, the coefficients of GDP and exchange rate variables in the long-run are significant for both models at the significance level of 95 percent, while in the short-run, coefficient of exchange rate has no significant effect on exports.