Exchange Rate and Trade Balance: Iran and its major Trading partners

Abstract

The main objective of this paper isto evaluate the short and long run effects of exchange rate depreciation inIran on the trade balance of each 5 major trading partners, including: Germany,United Arabic Emirates, Turkey, China and South Korea during 1980-2011. Theequations are estimated by using ARDL approach and ECM, and the stability oftrade balance in long term is evaluated by CUSUM and CUSUMSQ tests. The resultsof the short-term effects on trade balance indicate that J-Curve exists onlyfor UAE and South Korea. Furthermore, a long run impact on trade balance ofIran with Germany, UAE and South Korea is recognized.