The Asymmetric Exchange Rate Pass-Through in Iranian Economy (in Persian)

Mohammad Arbab Afzali () and Ilnaz Ebrahimi ()
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Mohammad Arbab Afzali: Iran
Ilnaz Ebrahimi: Iran

Journal of Monetary and Banking Research (فصلنامه پژوهش‌های پولی-بانکی), 2016, vol. 9, issue 27, 29-52

Abstract: The Survey of relationship between the exchange rate and domestic price levels, that has been known as “exchange rate pass-through” in international finance literature, have been one of the key issues in the field of international economics in recent decades. Exchange rate pass-through is defined as "percentage change in the domestic price of imported goods for every one percent change in the exchange rate between the exporting and importing countries”. In this study we examined the positive and negative exchange rate shocks on Iranian inflation rate and other macroeconomic variables during the period from 1339 to 1392, and in the context of a VAR Approach. The results indicate that the reaction of inflation rate to positive exchange rate shock (devaluation of the national currency and increasing the nominal exchange rate) is much more of a negative shock (increase the value of the national currency and decreasing the nominal exchange rate) is. In other words we can say that the degree of exchange rate pass-through in the event of a positive exchange rate shock is more (complete). The analysis of variance decomposition also shows that the sensitivity of inflation to the increase in exchange rate (devaluation of the Rial), is far more than reducing it (strengthening the Rial). The average explanatory of inflation by positive exchange rate shock in different periods is 4.1 percent, while for negative shock is 1.8 percent.

JEL-codes: E44 E58 E59 F31 (search for similar items in EconPapers)
Date: 2016
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