Abstract:
Adopting appropriate policies to reduce the trade deficit is considered one of the main goals and programs of economic policymakers towards strengthening the Iranian economy. However, the connection between the foreign trade sector and exchange rate policies adds complexity to the relevant studies. Therefore, identifying this connection, the cause-and-effect relationship between them, and the method of adopting and formulating macro-economic policies makes the way to achieve balance in the external sector clearer. The present article aims to identify the reciprocal relationships between the foreign trade sector deficit and different exchange rate patterns in the Iranian economy, seeking to examine the mechanism of the exchange rate system's impact on the foreign trade sector deficit in the long and short term using the Structural Vector Error Correction Model (Structural VECM) during the years 1360-1393. Comparison of results indicates a direct and significant long-term relationship between the real exchange rate and the trade balance of the Iranian economy during the period under study. Furthermore, the real exchange rate has had the greatest impact on improving (the deficit of) the trade balance of the Iranian economy compared to official and free market exchange rates; such that in the long run, the real exchange rate improves the trade balance with a coefficient of 33/1 and contributes to strengthening the Iranian economy.
Machine summary:
The government, as the most important decision-making authority in the country's trade, fiscal, and exchange rate policies, can, by selecting and managing the desired currency, create conditions so that in the future, the country's economy does not suffer from severe shocks resulting from the adoption of superficial and transient measures, and on the other hand, provides the ground for continuous improvement of the foreign trade sector, reduction of trade deficits, and through that, strengthening the economic resilience of the country.
Therefore, researchers in this article, considering the results obtained from estimating models related to the effect of the exchange rate on exports, imports, and production on one hand, and the pathology of the country's existing exchange rate system on the foreign trade and production sectors on the other hand, state that for the prevention and formation of the exchange rate system in the Iranian economy, which is a time-consuming process, a set of measures must be taken, the most important of which are: employing economic policies aimed at diversifying the export of goods and services; reforming the institutional, technical, and technological structures of the country's production; increasing the productivity of production inputs, especially labor productivity; enhancing the competitiveness of produced goods and services in the country's economy and, finally, diversifying foreign exchange earning sources from oil and its dependent products, in addition to oil.
Results of domestic and foreign studies Domestic studies Researcher ; Year ; Research finding (Effect of exchange rate on macroeconomic variables) Arabshahi ; 1376 ; Devaluation of the Rial (increase in nominal or real exchange rate) has not had a significant effect on the trade balance in the long term, or at least has not caused its improvement in the past.
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