Pricing Behavior and Exchange Rate: Evidence from Iranian Consumer Prices

Hamidreza Aziminia (), Seyed Ali Madanizadeh () and Amineh Mahmoudzadeh ()
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Hamidreza Aziminia: Sharif University of Technology
Seyed Ali Madanizadeh: Sharif University of Technology
Amineh Mahmoudzadeh: Sharif University of Technology

No 1809, Working Papers from Economic Research Forum

Abstract: This paper provides new evidence on the impact of exchange rate depreciation on pricing behavior. Using micro data on consumer price quotes in Iran from 2006 to 2022, we study price adjustments across a wide range of macroeconomic conditions—from low to high inflation and from stable to volatile exchange rates. While most existing studies emphasize the role of inflation, our analysis highlights the distinct contribution of exchange rate depreciation. We find that (1) in the short run, both the frequency and absolute size of price changes respond more to inflation than to exchange rate depreciation, but FX effects is stronger over longer horizons; (2) FX depreciation has a pronounced nonlinear effect on frequency of price changes, showing a significant impact only at high depreciation levels, while inflation displays a more linear pattern; (3) we find no evidence of nonlinear effects for either inflation or FX depreciation on the absolute size of price changes; and (4) expected inflation influences pricing behavior independently of actual inflation.

Pages: 34
Date: 2025-12-05, Revised 2025-12-05
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Published by The Economic Research Forum (ERF)

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