The Effect of Exchange Rate and Stock Index Fluctuations on the Efficiency of Agricultural Facilities

مجله اقتصاد و توسعه کشاورزی

Article 6, Volume 34, Issue 1 - Serial Number 47, April 2020, Pages 81-96   

Document Type: Research Article

DOI: 10.22067/jead2.vi0.84763

Authors

S. Roudari; M. Homayounifar^* ; M. Salimifar

Faculty of Economics and Administrative Sciences, Ferdowsi Universityo of Mashhad, Mashhad, Iran

Abstract

Introduction: The banking sector has a financial intermediary role and can directly and indirectly support the growth of the real sector of the economy. In countries such as Iran whose economy is bank-based, economic growth is largely dependent on bank loans and according to macroeconomic changes, banking flexibility has a great importance in economic development. On the other hand, according to the policies of the agricultural sector in the development perspective document, which insist on food security of the country by relying on production from domestic sources and emphasize on the self-sufficiency of production of basic products, the development of the agricultural sector has always been a matter of concern for the policymakers. One of the most important limitations in the agricultural sector is the limitation of financial resources for using modern technologies and the creation of higher added value products. Among the factors influencing the formation of an efficient financing system is the instability in other financial markets, especially the exchange rate, which affects the country's GDP and creates cyclical effects, finally affecting the performance of the banking sector. In fact, the impact of GDP on banking ability to provide facilities during periods of recession and booms is explained through business cycles. The purpose of this study is to investigate the effect of fluctuations in some asset markets such as exchange rate and stock index along with the variables of business cycles and agricultural products import on the efficiency of agricultural facilities.
Materials and Methods: In the present study, several econometric models have been used to investigate the effect of exchange rate and stock index fluctuations and business cycles on the efficiency of agricultural facilities. Initially, wavelet transform model was used to extract exchange rate and stock index fluctuations. The Daubechies discrete wavelet was used for this purpose. The advantage of this approach over the family of Arch models is the ability to distinguish fluctuations across time periods. In addition, Hodrick Prescott filter was used to extract business cycles, and Bootstrap data envelopment analysis approach was applied to evaluate the efficiency of agricultural facilities. The advantage of this approach over the data envelopment analysis approach is its bias correction and greater stability. The Markov switching model was also used to estimate the final research pattern. The used period in the study is 1384:1-1396:4.
Results and Discussion: According to Hamilton's study, the intercept that has the lowest coefficient indicates a low regime (low efficiency of facilities granted to the agricultural sector) and the intercept with a highest coefficient indicates the high regime (high efficiency of facilities granted to agriculture). Therefore, the zero regime in the present study indicates the high efficiency regime while regime indicates the low efficiency regime of the granted facilities. Based on the results of model estimation, the occurrence of business cycles in all regimes would lead to decline in the efficiency of the banking network facilities provided to the agricultural sector. The impact of exchange rate fluctuations depends on the time period. Short-term fluctuations have no significant effect on facility efficiency but medium- and long-term fluctuations have a negative significant impact. If the currency market volatility persists, it would reduce the efficiency, regardless of the regime and the level of efficiency of the facility. Of course long-term exchange rate fluctuations will have a stronger negative impact when the regime of agricultural facilities efficiency is high. Stock index fluctuations in the medium and long term also have a positive and significant impact when the efficiency of agricultural facilities is high. In case of high efficiency level of agricultural facilities, increasing imports of agricultural products will lead to decrease in efficiency.
Conclusion: In many studies on the effect of exchange rate, stock fluctuations, and business cycles on the performance of the banking network, several important factors have been ignored such as regime changes, and time-scale in the efficiency of facilities granted to the agricultural sector. Due to different impacts of exchange rate and stock index fluctuations across different time periods as well as on the different efficiency regimes of agricultural sector facilities, the policymakers of currency and capital market should manage currency and stocks based on the volatility period and the level of efficiency of facility. In fact, in such situation, the nonperforming loans will be less and the banking network will not have problem to finance the agricultural sector.

Keywords

Exchange rate; Efficiency of agricultural facilities; Markov Switching; Stock index

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