Asymmetric Effects of Real Exchange Rate on the Trade between Iran and China

Exchange rate and foreign exchange policies in Iran have always been one of the main challenges of the country's economy. Almost in all periods, various and challenges were about how the exchange rate is determined and what will be its effects on economic variables, especially foreign trade and balance of payment. In this regard, the present study examines the effect of the real exchange rate on the trade balance between Iran and one of its largest current partners, China, using the nonlinear symmetric method over the period of 1993-2016. The results show that on the one hand, the most appropriate method in such studies is the use of asymmetric and nonlinear models. On the other hand, the increase of the exchange rate, which is the depreciation of the Rial against the Yuan, improves in the long-run and shor-run, although its long-term effect has been more than its short-term effects. But the depreciation of the Yuan makes the balance in favor of China, as well as the effect of the depreciation of the exchange rate more than its effect on the trade balance between the two countries. Therefore, it is suggested that the realization of the value of the Rial against the yuan and allowing the depreciation of the national currency in line with inflation and other indicators would increase the competitiveness and expand foreign trade.