In this study, the behaviour of exchange rate and its effect on macroeconomic
variables are investigated by employing "Impulse function medel" and "forcasting,
error variance decomposition model". Studies show that keeping exchange rate
artificially high, will result in disequilibrium of balance of payments and internal
budget; and the reduction of exchange revenue because of sluggishness of agricultural
and industrial activities will result in an increase in external debt and inflation;
decrease in production capacity, perchasing power and national welfare.
In the study of the effect of exchange policy on foreign trade, the main point is the
unanticipated reaction of trade balance in the first phase of employing exchange policy,
so that in the initial stages, devaluation might worsen the trade balance.The results
show that in Irans economy, the effect of real devaluation of Rial can lead to the
improvement and growth of non-oil exports. It is worth mentioning that the positive
spectrum of this effect is limited and will not last more than a year. This confirms the
existence of j" curve in Iran trade from the first quarter of 1977 to the last quarter of
1995. The results also show the importance of import share on the changes of real
exchange rate. The changes of short-run production is affected by import, liquidity,
effective real exchange rate, non-oil exports and production accordingly.The results
indicate that the lags of liquidity and import variables explain the changes of non-oil
exports significantly. Also, production in its equation, is affected only by its own lags.
This means that, through the period of study, the exchange and momentary policies
couldnt play a significant role in the production change. Lastly, in import equation,
import is weakly affected by the lags of real exchange rate. That is through the period
of study, the import restrictions as a predominant variable has had a pivoted role on the
import movement process in Iran.