Experimental study of the impact of foreign exchange rate fluctuations on Iran's Saffron export demand: A dynamic pooled mean group (PMG) approach

This study estimate the effect of exchange rate fluctuations on saffron export demand. To this end, the pooled mean group (PMG) approach is used in order to implement the model of auto regressive distributed lag model (ARDL) and vector error correction model (VECM) in the context of panel data. The results showed that, relative price of exports has a negative and significant effect on Iran's saffron export demand. In the short- and long-term, the estimated price elasticity suggests that Iranian saffron export demand is price inelastic. The results indicate that real income effect of importing countries on the export of Iranian saffron is positive. In the short-term, income importing countries has no significantly effect on Iranian saffron export demand, while the long-term effect is significant at the 0.01 level. In both short- and long-term, the results indicate that exchange rate has a significant, positive effect on Iran's saffron export demand. The exchange rate elasticity of export demand for Iran's saffron is elastic in both short- and long-term. Therefore, the devaluation of the Rial, Iran's currency, led to a significant increase in the export of Iranian saffron. Also, the results showed in the short-term, the unpredictability of exchange rate fluctuations lead to increase the degree of risk aversion of exporters of Iranian saffron and so they prefer to deal with this issue by reducing their export. However, in the long-term, the income effect dominates the substitution effect, and exchange rate fluctuations has a positive effect on the export of Iranian saffron by creating profit opportunities