Asymmetric Effects of Exchange Rate Shocks on Urban Household Health Expenditures in Iran

Abstract

Background: The evidence of Iran's economy shows that many economic variables, including household health expenditures, can be affected by exchange rate shocks. According to previous studies, the increase in the exchange rate from two channels of the general increase in prices, as well as the increase in the price of medicines and imported medical supplies, increases health expenditures. This study investigated the asymmetric effects of the unofficial exchange rate on the health expenditures of urban households in Iran. Methods: The present applied study investigated the short-run and long-run effects of positive and negative shocks of the unofficial exchange rate, gross domestic product (GDP), and CO2 emissions on the health expenditures of urban households during 1971-2019 using time series data. The data were collected from the database of the Statistics Center and the Central Bank. To investigate the reliability of data, generalized Phillips-Prone and Dickey-Fuller tests and to check the stability of the coefficients, cumulative sum and cumulative sum squares were used. Also, to check the short-run dynamics and adjustment towards the long-run, the error correction model was estimated. The regression model was estimated using the Nonlinear Autoregressive Distributed Lag approach by Eviews (12.0) software. After estimation, diagnostic tests including Wald test, normality, heterogeneity of variance and autocorrelation were performed. Results: The results showed that the increase in exchange rate has a positive and significant effect on household health expenditures, its reduction has no significant effect Therefore, the effect of exchange rate shocks was asymmetric. Accordingly, 1% increase in the unofficial exchange rate led to a 0.237 % increase in household health expenditures in the short-run and  0.55 % increase in the long-run. In addition, 1% increase in GDP led to 0.49 % increase in household health expenditures in the short-run and 1.57% increase in the long-run. Finally, 1 % increase in CO2 emissions led to a 1.49 % increase in household health expenditures in the long-run. Conclusion: Based on the results, after the increasing exchange rate shocks and possible future declines, due to the persistence of the shocks effects for up to three years, it is suggested not to stop supportive policies for providing health expenditures, especially for low-income groups.