Economic analysis of short-term and long-term effects of exchange rate uncertainty on the export of iranian saffron

In order to get rid of single-product economy, trade of agricultural products is emphasized by the government. As Iran is the biggest producer and exporter of this strategic product in the world, the analysis of factors affecting export of Iran's saffron, can result in better policy making. Accordingly, this study is aim to investigate the short-term and long-term effects of exchange rate volatility beside the other factors affecting the export of this product using panel data for Iran's major trading partners during 1992-2014. For this purpose and to avoid the limitation of symmetric approaches to calculate instability indices, the exchange rate volatility index was firstly calculated by using asymmetric method of Exponential Generalized Auto-Regressive Conditional Heteroskedasticity (EGHARCH). Then, this index was used along with other variables to estimate of proposed model using the Fully Modified Ordinary Least Squares (FMOLS) method. The results showed that although countries income and real exchange rate have positive and significant effects on saffron export, exchange rate volatility has a negative and significant effect on export of this product. Therefore, if the government’s goal is to support the export of this product, it is vital to achieve stability in exchange rate market. Moreover, the results of estimating error correction model indicate that the speed of disequilibrium adjustment towards long-run equilibrium relationships is substantial. Therefore, policy-making would be hopeful in the short-term