Exploring the Interface: Financial Crisis-Induced Exchange Rate Fluctuations and Implications for Iran's Current Account Deficit (1989-2022)

Abstract

Investigation into the nexus between financial crises and the current account deficit within Iran’s economy was conducted, utilising time-series data spanning from 1989 to 2022. Augmented Dickey-Fuller (ADF) test validations endorsed stationarity of all variables upon first differencing. Through the deployment of Johansen's cointegration methodology, a long-term positive impact of real exchange rate oscillations on the trade deficit was discerned. Furthermore, the implementation of an error correction model (ECM) furnished additional perspectives regarding the dynamic interplay amongst the variables under consideration. The findings elucidate the repercussions of financial crises on Iran’s current account deficit, revealing a palpable influence of exchange rate volatilities on economic stability and providing insights into the nuanced macroeconomic relationships amidst periods of fiscal turmoil. The research underscores the exigency for robust fiscal and monetary strategies to navigate the intricacies of economic vulnerabilities and fortify against ensuing financial perturbations.