Dundee Discussion Papers in Economics 165: Is monetary discipline a precondition for the effectiveness of Iran’s export promotion policies?

In the last decade, Iranian authorities have implemented a number of trade reforms and export stimulating policies. They have also tried to stabilise the dollar exchange rate and eliminate the black market premium. These policies have had little, if any, lasting favourable effect on non-oil exports. One conjecture may be based on the inconsistency of their monetary policy: as money supply is used independently - without any regard for trade reforms and export promoting policies - to accommodate government’s fiscal needs, its inflationary consequences undermine export incentives. We use 1982:Q1-2000:Q2 data to estimate the response of exports to a oneoff rise to money supply and find that the results support the above conjecture.