Macroeconomics
Maryam Mehrara; Amir Gholami; Seyed Mohammad Mehdi Ahmadi
Abstract
Due to the importance of balancing internal and external of the economy, research on the interaction effects of the budget deficit, savings gap, and current account deficit has always been a major issue for policymakers. The main purpose of this study was to test the validity of the triple deficit hypothesis ...
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Due to the importance of balancing internal and external of the economy, research on the interaction effects of the budget deficit, savings gap, and current account deficit has always been a major issue for policymakers. The main purpose of this study was to test the validity of the triple deficit hypothesis during the period 1978-2019 in the Iranian economy with the presence of the degree of trade openness for two models of oil trade and without oil trade. In the present paper, by providing a theoretical framework and using the Johansen - Juselius cointegration test method and the error correction mechanism, long-term and short-term relationships of the variables of this research are investigated. The results showed that the long-run relationship among the components of the triple deficit hypothesis is established in the two models of oil trade and without oil trade, but the validity of the triple deficit hypothesis is not confirmed in the short run. Through the Impulse response functions, decisions were made about the interrelationships among the variables, and the results of this method confirmed the validity of the triple deficit hypothesis for the oil trade model and the occurrence of the inverse mechanism for the oil-free trade model. Finally, in the oil trade model, internal and external imbalances reduced trade openness, and in the non-oil trade model, only the savings gap played such a role. This emphasized the key role of the private sector in reducing internal and external imbalances.
