Analyses the Balance of Payment Interact from Foreign Exchange Market Events: The Case of IRAN

Subject Areas : Financial Knowledge of Securities Analysis

Nasredin AghazadehKamali ^{1 *} , Majid Delavari ² , Ali asghar AsgharEsfandiyari ³

1 - کارشناس ارشد اقتصاد، دانشگاه آزاد اسلامی واحد علوم و تحقیقات خوزستان
2 - مدرس دانشگاه آزاد اسلامی واحد علوم و تحقیقات خوزستان
3 - استادیار دانشگاه آزاد اسلامی واحد علوم و تحقیقات خوزستان، دانشکده اقتصاد

Received: 2013-12-07 Accepted : 2014-06-28 Published : 2015-04-09

Keywords: Balance of Payment, Foreign Exchange, Garch model, Near-VECM Model,

Abstract :

The balance of payments is one of the most important economic indicators for each country, because this variable is important information to the international situation and shows how the national economy conecte to other countries, foreign exchange and gold stock changes. In other words, the importance and reviews the balance of payments and thus the foreign exchange market is obvious because the majority of developing countries including Iran are suffering from the foreign trade imbalance due to its unpleasant effects on the domestic economy (production, inflation, etc.).  Therefore, this study is trying to investigating the effect of implications and consequences of exchange rate shocks on the balance of payments. This study uses monthly time series data for the period 1385 Fravardin to 1392 Mordad and has been using Near-VECM model. Near-VECM which have higher explanatory power in comparing VECM base on the study result, analysis the effect of exchange rate volatility on The balance of payments, in addition to the exchange rate changes. According to the study findings, there were strong and significant short-run and long-run relationships between the research variables and also negative and significant short-run and long-run relationships between the foreign exchange volatility and the balance of payment. In addition, the coefficient of error correction term is equal to (-0.6) and it is negative and significant that shows the high speed adjustment process. Therefore, considering the research results, it is necessary that government executive economic policies to be designed and implemented with emphasis on reducing the volatility in the foreign exchange market.