ANALYZING THE ASYMMETRIC EFFECTS OF INFLATION AND EXCHANGE RATE MISALIGNMENTS ON PETROCHEMICAL STOCK INDEX: THE CASE OF IRAN

To investigate whether the exchange rate misalignments and inflation are significant indicators of changes in the petrochemical stock index in Iran, this paper based on time series data from January 2012 to January 2020 uses an asymmetric and nonlinear framework, NARDL. The empirical results provethe existence of asymmetric and significant relationships between the variables, and also confirm the impacts of negative components of exchange rate misalignments and, conversely, positive components of inflation have been stronger than the effects of their decomposed counterparts both in the long run and short run. Moreover, the results suggest that the longer the period of exchange rate undervaluation, the cheaper the export of Iranian petrochemical products; consequently, the higher the return to petrochemical industry shareholders, and vice versa. Therefore, as long as evidence exists of an exchange rate undervaluation in the economy, investing in exportoriented sectors such as the petrochemical industry would be relatively profitable. In terms of inflation, an increase in this variable can, on average, lead to more growth in the stock index than the effects of a decline of the same amount of inflation. Hence, considering the behavior of the central bank in determining the exchange rate, the exchange rate misalignments together with the inflation trend can make high profits for petrochemical companies as well as the industry shareholders.