Assessment of the Symmetric and Asymmetric Effects of Exchange Rate Volatility on the Flow of Iran-China Industrial Trade

Abstract

The exchange rate is important because of the interaction with other internal and external variables and exchange ratevolatility will have important economic implications. The relationship between exchange rate volatility and trade flows is one of the important issues in international economics. The effect of increasing the exchange rate volatility on trade flows may be different from the decrease of exchange rate volatility on trade, so the main objective of this research is to evaluate the symmetric and asymmetric effects of exchange rate volatility on industrial trade flows in Iran. In this research, the symmetric and asymmetric effects of exchange rate volatility on Iran's export and import industries (for the 9 export industries to China and 12 industries imported from China) are estimated in the years 2016-1992. Linear ARDL has been used to evaluate the symmetric effects and nonlinear ARDL approach has been used to evaluate the asymmetric effects. The results show that out of the 21 industries, almost half of the imported and exported industries have asymmetric effects of exchange rate volatility surveyed. The results of this study show that the asymmetric effects vary by industry. Also, most of the investigated industries in this study use the exchange rate volatility as a factor for profitability and, despite volatility in exchange rates, increase their business. Therefore, this research is confirmed in most of the approved surveyed industries the risk theory is a portfolio.