Using The Error Correction Model-ECM to study the impact of the parallel exchange rate on the trade balance in Syria - an econometric investigation during (2012-2018).

Abstract

The purpose of this study is examining the impact of the exchange rate on elements of the Syrian balance of payments during the crisis, it examined the exchange rate effects, especially reducing the value of local currency, and its role in reducing the deficit in the balance of trade, In order to determine the nature of the relationship and to determine the extent of the use of the exchange rate as a tool of economic policy in Syria, as well as the extent of conformity of the state of the Syrian economy with the economic theory, which said: the decline in the exchange rate leads to reduce the deficit in the trade balance.The Research included an analytical study of monthly balance of payments data through formulation an Eco metric model of the impact of fluctuations in exchange rate on the trade balance using the error correction model-ECM during the period 2012-2018.The results were contrary to the economic theory, the study concluded that there is an inverse relationship between exchange rate and trade balance in the long term. A 1% rise in the parallel exchange rate would lead to a 0.80% decline in the trade balance, while the short-term correlation was positive with a 1.36% improvement as the exchange rate rose 1%.