Authors
1 Assistant Professor, University of Tehran, Iran
2 Researcher
Abstract
This paper studies the impact of Rial's real devaluation and scale variables (domestic and foreign real income) on Iran's trade balance using the Johansen-Juselius and ARDL methods for the period 1338-1383 (1960-2004).
According to co-integration tests results, trade balance variables, domestic and foreign income, and black market exchange rates are co-integrated indicating a long run equilibrium relationship among them. Moreover, all the long and short run coefficients have expected signs and are stable during the sample period. However, the official exchange rate is not able to explain trade balance fluctuations satisfactorily in this period. The results of co-integration tests reject the null of long run equilibrium relationship among trade balance, scale variables and official exchange rate. The diagnostic tests in the error correction models with official rate imply serious mis specifications as well. The study suggests the need to monitoring the black market rather than official exchange rate.
Keywords
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