Document Type : Research Paper

Authors

• Heshmatullah Asgari ¹
• Ali Moridian ²

¹ Department of Economics, Ilam University, Ilam. Iran.

² Department of Economics, Uremia University, Uremia, Iran.

Abstract

Iran’s economy has always experienced a steady expansion in the budget deficit, which has limited its ability to achieve comprehensive economic growth, as well as enduring foreign sector instability (trade balance deficit). These two deficits, namely the budget deficit and the trade deficit, must be properly managed in order to promote economic stability and inclusive growth that is both sustainable and long-lasting. Using the rolling window (bootstrap) method, the dynamic causation relationship between Iran’s budget deficit and trade deficit from 1965 to 2018 has been examined in this paper. Considering the structural gaps, the beginning and end of each period of causality are studied. The results of the paper show that during the years 1981-1987, the budget deficit had a positive impact on the trade deficit, which is consistent with the findings of the Mundell-Fleming model. However, during the periods 1975-1977, 1998-1999, and 2005-2013, the budget deficit had a negative impact on the trade deficit due to the abandonment of the trade deficit, which was caused by the absence of organized or less organized financial markets in the country to finance the government budget. In addition, the data indicate that the trade deficit had a positive and substantial effect on the government’s budget deficit during the period 1991-1992, but a negative and significant effect during the periods 1975-1976, 1981-1985, 1989-1970, 2005-2006, and 2009-2011. This indicates that the Iranian government cannot utilize fiscal policy to correct the imbalance in its external sector.

Keywords

• Fiscal Deficit
• Trade Deficit
• Rolling Window Approach

Main Subjects

• Energy Economics

Article Title [Persian]

Bootstrap Rolling Window Approach in Investigating the Causal Relationship Between Twin Deficits over Time in IRAN

Authors [Persian]

• حشمت اله عسگری ¹
• علی مریدیان ²

¹ گروه اقتصاد، دانشگاه ایلام، ایلام. ایران.

² گروه اقتصاد، دانشگاه ارومیه، ارومیه، ایران.

Abstract [Persian]

Iran’s economy has always experienced a steady expansion in the budget deficit, which has limited its ability to achieve comprehensive economic growth, as well as enduring foreign sector instability (trade balance deficit). These two deficits, namely the budget deficit and the trade deficit, must be properly managed in order to promote economic stability and inclusive growth that is both sustainable and long-lasting. Using the rolling window (bootstrap) method, the dynamic causation relationship between Iran’s budget deficit and trade deficit from 1965 to 2018 has been examined in this paper. Considering the structural gaps, the beginning and end of each period of causality are studied. The results of the paper show that during the years 1981-1987, the budget deficit had a positive impact on the trade deficit, which is consistent with the findings of the Mundell-Fleming model. However, during the periods 1975-1977, 1998-1999, and 2005-2013, the budget deficit had a negative impact on the trade deficit due to the abandonment of the trade deficit, which was caused by the absence of organized or less organized financial markets in the country to finance the government budget. In addition, the data indicate that the trade deficit had a positive and substantial effect on the government’s budget deficit during the period 1991-1992, but a negative and significant effect during the periods 1975-1976, 1981-1985, 1989-1970, 2005-2006, and 2009-2011. This indicates that the Iranian government cannot utilize fiscal policy to correct the imbalance in its external sector.

Keywords [Persian]

• Fiscal Deficit
• Trade Deficit
• Rolling Window Approach