Exchange Rate Pass-Through to Domestic Prices in Iran (1990-2006)

Ali Taiebnia and Armaghan Rahimi
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Ali Taiebnia: Assistant Professor of economics, Faculty of Economics, University of Tehran
Armaghan Rahimi: MA in Economics, Faculty of Economics, University of Tehran

Iranian Economic Review (IER), 2007, vol. 12, issue 3, 85-108

Abstract: This article investigates the pass-through of exchange rate shocks into import, wholesale and consumer price indexes in Iran by using a monthly data set for the period 1990-2006. The baseline analysis is carried out with identified an unrestricted vector autoregressive model. Impulse response functions show that pass-through is incomplete. Moreover, the price effect of an exchange rate shock is more pronounced in the case of import price relative to wholesale and consumer prices. Variance decomposition method indicates exchange rate shocks are important in explaining the variance of the prices. Also the variance of exchange rate has the biggest share in explaining the CPI inflation. These results are remarkably robust to a number of alternative specifications of the model.

Keywords: Exchange Rate; Pass-through; Price indexes; VAR (search for similar items in EconPapers)
Date: 2007
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