Evaluating Economic Effects of Exchange Rate Depreciation on the Rice Market in Iran

Abstract

In recent years, Iran has experienced high level depreciation of the Nominal Exchange Rate (NER). The ultimate effects of such depreciation on Iranian families’ welfare and income distribution have been a challenging issue among policymakers and researchers. Accordingly, this study evaluates the economic effects of NER depreciation on the rice market, using spatial price equilibrium model. The model was calibrated for the base year 2010 and was executed using GAMS programming language and was solved by the PATH solver. The results suggested that decreasing the NER would be detrimental. Social welfare is adversely affected by depreciation of the NER. This shock would also decrease real and per capita income and increase slightly the incidence, the gap, and severity of poverty. Also, the regional effects were found to vary, depending on being a net exporter or a net importer region. Overall, this study contributes to previous studies by considering income effects and import exemptions in the model. Keywords: Nominal exchange rate, Spatial price equilibrium model, Welfare.