Analysis of the Effect of Exchange Rate Growth on Land Price Index (Autoregressive Distributed Lag Approach)

Land is one of the most critical inputs in various sectors, including housing, agriculture, industry, and the start of any economic activity, along with capital and labor. Having land for many families to meet the necessary needs of residents and enterprises is considered a production input, and its capital aspect is weak (Ghanbari et al., 2017). In developing economies, including Iran’s economy, investment in fixed assets such as land and housing has a high return, which, despite high inflation, can maintain the purchasing power of families in proportion to inflation as an inflationary shield (Najafi,2013). The exchange rate is among the most important factors influencing Iran’s economy. Considering the dependence of Iran’s economy on the exchange rate, its fluctuations play a fundamental role in economic performance and the price of goods and services. Land is also a durable commodity; its price is determined in the supply and demand market and is not excluded from the effects of the exchange rate. (Tavakoli & Sayah,2010). In the past years, the price of this input has increased due to the increase in the general level of prices and the increase in capital demand for land. Additionally, from this point of view, it has played a significant role in increasing the prices of goods and is considered one of the factors of inflationary stagnation in the economy. Land has the largest share in the price of housing; as a necessary commodity without substitute, it has also caused a sharp increase in the price of housing. Many factors have been involved in increasing the general level of prices and land prices. Due to the dependence of Iran’s economy on the exchange rate, one of the most important factors of inflation is the changes in the exchange rate, which has a strong effect on the increase in the price of goods and services and, consequently, land (Tavakoli & Sayah,2010). The price of land as an input reflects the current cost of financing (sometimes considered equal to the price of capital supply) and expectations about the cost of financing in the future. From the perspective of cost pressures and rising input prices, it can cause or exacerbate inflation.  Various studies have been conducted on the exchange rate and how it affects the economy, as well as land prices and the factors affecting them. However, no one has examined the relationship between exchange rates and land, and how they affect each other is still in question. Since land, in the view of some economists, is considered separately as an important input in the production function, along with capital and labor, it is important to understand the factors affecting it. Since the Iranian economy is heavily affected by the exchange rate, land, in addition to being a production input, is considered a capital and low-risk commodity. Therefore, its level of impact is important. The main goal of the research is to answer the question of how and to what extent the exchange rate affects the price of urban land.

This research aims to investigate how the exchange rate affects the price of urban land as a commodity in the economy. It was conducted using an autoregressive model with distributional lags. It examined the effect of the exchange rate on the urban land price index from 1992 to 2011 in both short-term and long-term terms and achieved valuable results that will be useful to consider in the field of planning and policymaking. This model is beneficial for solving time series problems and can be used both in stationary and once-differentiated conditions. This flexibility of the ARDL model provides a significant advantage in econometric analysis. The ARDL model is designed using a combination of past lags of the dependent variable and explanatory (independent) variables. Among the advantages of the autoregressive model with distributed lags are the lack of the need for the order of cointegration of the variables at the level or first-order difference, the possibility of analyzing short-term and long-term relationships simultaneously, the ability to apply to small samples, and high flexibility in economic issues. Given that the number of observations is (30 years) and the minimum data required for this model is available, this method has been evaluated as appropriate for estimating the relationship between exchange rate growth and urban land price index growth.

The results of the model indicate that the growth of the land price index was a function of the dependent variable itself with a time lag of one and two years. According to the estimate, if the exchange rate increases by one percent, the land price index will grow by 0.70 percent in the same period. The results also indicate that in the long run, the impact of the growth of the urban land price index on the growth of the exchange rate has not been significant. Despite this impact, government intervention is necessary to prevent market failure and control the market, and policies and strategies have been proposed to control and manage the exchange rate and urban land price by implementing which the exchange rate can be controlled and the land market stabilized.

As mentioned in this study, the effect of exchange rate growth on the growth of the urban land price index in the period 1992 to 2021 was evaluated using the autoregressive model method with a wide lag. Land is an essential commodity for every individual as an input for building a place to live. In addition, it is also considered a major and non-renewable resource in sustainable urban development. From these perspectives, it is essential to manage supply and control its price and fair distribution. Given the dependence of the Iranian economy on the exchange rate, its fluctuations play a fundamental role in economic performance and the prices of goods and services. Given that land is also a commodity, its price is determined in the market by supply and demand; it is not exempt from the effects of the exchange rate. This means that in the short term, a one percent increase in the exchange rate leads to a 0.7 percent increase in the urban land price index. The results also indicate that in the long term, the impact of the growth of the urban land price index on the growth of the exchange rate has not been significant.