University of Tabriz Applied Theories of Economics 2423-6586 4 3 2017 10 23 Effect of Exchange Rate and Exchange Rate Uncertainty on Domestic Consumption in Iran Effect of Exchange Rate and Exchange Rate Uncertainty on Domestic Consumption in Iran 195 214 6811 FA Seyed Jamaledin Mohseni Zonouzi Assistant Professor of Economics, Urmia University Soleiman Feizi Assistant Professor of Economics, Urmia University Akram Mosavi M.A. in Economics, Urmia University Journal Article 2017 03 11 The main objective of this study is to investigate the effect of exchange rate and exchange rate uncertainty on domestic consumption in Iran during 1988q2-2015q1.Therefore,GARCH method is used to estimate the exchange rate uncertainty and the Bonds test approach to ARDL models is used to analyze the existence of long-run relationship, and the Vector Error-Correction model is used to analyze the short-run deviations of variables from their long-run equilibrium values. The results indicate that the exchange rate has direct significant long run and short run effect on the consumption, but exchange rate uncertainty has indirect significant effect on the consumption in Iran. Positive relationship between exchange rate and consumption confirms the exchange rate path theory in Iran. Negative relationship between exchange rate uncertainty and consumption confirms absorption theory in Iran. The results suggest monetary authorities in Iran to adopt appropriate exchange policy for decreasing exchange rate uncertainties. Due to insignificant short run and significant long run effect of government expenditure on consumption, it is suggested to adopt managed government expenditure growth rate in mid-term program. The main objective of this study is to investigate the effect of exchange rate and exchange rate uncertainty on domestic consumption in Iran during 1988q2-2015q1.Therefore,GARCH method is used to estimate the exchange rate uncertainty and the Bonds test approach to ARDL models is used to analyze the existence of long-run relationship, and the Vector Error-Correction model is used to analyze the short-run deviations of variables from their long-run equilibrium values. The results indicate that the exchange rate has direct significant long run and short run effect on the consumption, but exchange rate uncertainty has indirect significant effect on the consumption in Iran. Positive relationship between exchange rate and consumption confirms the exchange rate path theory in Iran. Negative relationship between exchange rate uncertainty and consumption confirms absorption theory in Iran. The results suggest monetary authorities in Iran to adopt appropriate exchange policy for decreasing exchange rate uncertainties. Due to insignificant short run and significant long run effect of government expenditure on consumption, it is suggested to adopt managed government expenditure growth rate in mid-term program. https://ecoj.tabrizu.ac.ir/article_6811_78c7c93ea607ec7aa890e7ddd8ce6ba8.pdf