Current Account Dynamics in Iran: An Intertemporal Approach

We aim to highlight the asymmetric relationship between the current account balance and variables of fundamental macroeconomic and macroeconomic stability in the nonlinear boundary test approach in Iran, for the period 1978-2020. The main focus of this research is on the intertemporal approach to the current account views the current account as the difference between domestic saving and domestic investment and focused on macroeconomic factors that determine these two variables. The primary purpose of this research is to assist in the formulation of appropriate economic policies to minimize any negative effects of the current account deficit on the economy. The nonlinear boundary test approach method is used in this article due to the possibility of long-term nonlinear relationships between the current account deficit and financial balance, inflation rate, KOF index, net foreign assets, real effective exchange rate, total investment, terms of trade and GDP per capita growth. According to the analysis findings, there is a long-term cointegration relationship between variables. It is seen that while there exists long-term asymmetry between the current account deficit, net foreign assets, and financial balance the coefficients themselves are not statistically significant. However, the effect of the real effective exchange rate and the Terms of Trade on the current deficit is statistically significant and substantial. The asymmetric cointegration result confirms, between the current account deficit and the inflation rate, KOF index, total investment, terms of trade, and GDP per capita growth a long-run integration exists.