Abstract

Searching for policies to cut the current account 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, financial 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 1338-1380. The results indicate that there exists a long run interactive relation between the real budget deficit and the current account deficit. Secondly, implementing the devaluation of the home currency has not been a useful policy to cut the current account deficit.