Trade Balance and Money Supply: Evidence from Iran
Trade Balance and Money Supply: Evidence from Iran
Author(s): Lotfali AgheliSubject(s): National Economy, Business Economy / Management, Recent History (1900 till today), Economic policy, International relations/trade, Fiscal Politics / Budgeting
Published by: Reprograph
Keywords: domestic absorption; money supply; current account; structural break;
Summary/Abstract: This paper aims to examine the effect of money supply on trade balance in Iran. A simple Kynesian model is modified to account for money market through absorption approach. In this model, the imbalances in the money market are linked to trade balance. After testing series against unit root under structural break, a co-integration relationship among trade balance, real money supply, economic growth and inflation rate was found during 1970-2014. Our findings imply that a positive balance on trade needs to exert contractionary monetary policy, which leads to control of money supply and lowers inflation rate, and adopting proper fiscal policies, and also institutional reforms towards sound macroeconomic environment.
Journal: Journal of Applied Economic Sciences (JAES)
- Issue Year: XI/2016
- Issue No: 44
- Page Range: 1234-1236
- Page Count: 3
- Language: English