AN EMPIRICAL STUDY OF MONETARY APPROACH TO THE BALANCE OF PAYMENTS: THE CASE STUDY OF IRAN DURING 1962-1978

The gradual increase in the price of oil since 1960s along with sharp price rise in 1973, has created innumerable problems. The 1973 price increase created a substantial unexpected change in the distribution of wealth and income from the oil consuming countries to the oil producing countries. Such transfers created domestic and international economic problems for oil producing nations. In this study I applied the monetary approach to the balance of payment theory to the Iranian experience for the period of 1962-1978. First, I listed the integrated market hypothesis for commodity market. Two tests were performed: (a) I compared the Iranian rate of inflation with the world\u27s rate of inflation and concluded that there is no significant difference between Iranian and the world\u27s rate of inflation, and (b) I compared the Iranian rate of inflation and its major trading partners over the same period of time, and no significant difference was observed. Second, I estimated the monetary equation for Iran in two different periods. (a) Period of 1962-1973: Sixteen monetary equations were estimated for this period and only the equations using the broad definitions of money yielded accepted theoretical coefficients. (b) Period of 1962-1978: The same sixteen monetary equations were estimated for this period and all equations yielded theoretically accepted coefficients. Then I evaluated the economic planning and monetary policy of Iran during the period of 1962-1978