Exchange Rate Pass-Through on Non-Oil Trade Balance in Iran

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Abstract:

This article investigates the relationship between the exchange rate and non-oil trade balance in Iran between 1981 and 2014. A structural vector auto-regression model is built. The results indicated that the increasing effect of the real effective exchange rate worsens the non-oil trade balance in the short term. In contrast, the increasing effect of the real effective exchange rate improves the non-oil trade balance in the long term. In addition, the increase in the effective real exchange rate has two effects: the price effect can overcome the quantity effect leading to the deterioration of the non-oil trade balance in the short term. However, the quantity effect overcame the price effect and improved the non-oil trade balance in the long term. On the other hand, the J-curve and S-curve phenomena were confirmed.

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Journal title

volume 17  issue 1

pages  89- 114

publication date 2022-03

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