Examining the Effects of Internal and External Shocks on the Trade Balance of Iran

Adel Karimi (), Farzin Arbabi (), Manijeh Hadinejad Darsara () and Khashayar Seyed Shukri ()
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Adel Karimi: PhD Student in Economics, Faculty of Economics, Islamic Azad University, Tehran Central Branch, Tehran
Farzin Arbabi: Assistant Professor, Faculty of Economics, Islamic Azad University,Tehran Central Branch,Tehran
Manijeh Hadinejad Darsara: Assistant Professor, Faculty of Economics, Islamic Azad University,Tehran Central Branch, Tehran
Khashayar Seyed Shukri: Assistant Professor, Faculty of Economics, Islamic Azad University,Tehran Central Branch,Tehran

Quarterly Journal of Applied Theories of Economics, 2023, vol. 10, issue 1, 289-322

Abstract: The present article examines the impact of domestic and foreign shocks on the country's trade balance using the SVAR structural vector auto regression model for the years 1990-2020. According to the estimation results of the model, an impulse from the oil price and exchange rate jump of 13% and 8% will worsen the trade balance situation in the country. Also, an impulse from the years of embargo in the country's oil exports, liquidity volume and inflation rate will worsen the trade balance by 1, 4 and 32 percent, respectively. Based on the results of instantaneous response functions; The impetus from the increase in oil prices and the positive jump in the exchange rate in the first two periods has led to a decrease in the trade balance, and then in the long term, it has led to an increase and improvement in the trade balance. Considering the wide consequences of exchange rate changes on the performance of Iran's economy, exchange rate management is very important. This has become more important in the current state of the country's economy, especially with the increase in economic sanctions, the jump in the unofficial exchange rate in the open market; Therefore, it is suggested that the central bank authorities consider the effects of shocks to the exchange rate while adopting a single-rate managed floating exchange rate system instead of a fixed exchange rate mandate policy. It is also necessary to adapt other macroeconomic policies to the currency regime and use the inflation targeting policy.

Keywords: Domestic impulses; external impulses; trade balance; SVAR model. (search for similar items in EconPapers)
JEL-codes: C24 E52 G12 (search for similar items in EconPapers)
Date: 2023
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