Impact of Real Exchange Rate Uncertainty on Agricultural Sector Growth in Iran

This paper investigates the impact of real exchange rate uncertainty on the agricultural sector growth in Iran during the period of 1969-2007. The Generalized Auto-Regressive Conditional Heteroskedasticity (GARCH) Approach is employed to measure the real exchange rate Uncertainty. Autoregressive Distributed Lag (ARDL) approach is used to obtain the estimates of the co-integrate relations and the short run dynamics. The results showed robust and significant short and long run relationships between variables in the Iranian agricultural sector growth model. The real exchange rate uncertainty had a significant negative effect on agricultural sector growth. The error correction term (-0.71) is found to be negative and statistically significant suggesting a quick adjustment process. Based on the results, it was suggested that in order to reduce uncertainty, foreign exchange, trade, monetary and fiscal policies must be coordinated. Furthermore, designing insurance programs to overcome this problem is recommended to compensate losses of exchange rate uncertainty.