Model of desirable for exchange rate, foreign trade sector & economic solidification in Iran

Searching for policies to reduce the trade deficit on one hand and improving the foreign balance of payments on the other, is one of the major tasks of every country’s financial authorities. However, the interrelationships of trade and exchange rate policies have made research in such fields cumbersome. Therefore, the knowledge of such bilateral relations paves the way for setting up macroeconomic policies in obtaining a well behaved foreign trade sector. The purpose of this study is to evaluate the short run and the long run relationships of the factors affecting trade deficits during the period (1981-2014). The results indicate that there exists a long run relation between the exchange rate and the trade balance. Secondly, the real exchange rate has more effect on improving balance trade compared with the official & market exchange rates, as the real exchange rate will improve the trade balance by 1.33 in the long term, and through which has strengthen the economy