Investigating the Effect of Exchange Rate Positive Shock on Employment in Housing Sector (Case Study: Mashhad City)

Micro-national analysis suffers from aggregation problem due ignoring sectoral-regional interactions. housing sector plays a crucial role in economy and specially in employment of Iran’s metropolises. Exchange rate shocks can affect housing sector and through this channel, can have an effect on the employment in this sector. Hence, exchange rate shocks can be considered as the obstacles to the fulfilment of urban and economic goals. Because of above-mentioned reasons, this essay investigated the effect of exchange rate shocks on the employment in housing sector of Mashhad city. The authors have substituted Factor-Augmented Vector Auto Regression (FAVAR) for Vector Auto Regression (VAR). FAVAR is suggested for solving the limited information problem in VAR models and more variables can be used in these models. Our results are based on quarterly data during 1991- 2018 period for housing sector, industry and macroeconomics variables. The impulse-response figures indicate that exchange rate shock has led to inflation, stagnation, an instantaneous increase in the unemployment, and an increase in the share of housing sector’s employment of Mashhad city after some periods.