The Effects of Exchange Rate on Price-Setting in Manufacturing Sector: Applying Price Micro Data of Iran

Saeid Bayat (), Sajad Ebrahimi () and Omid Ghaderi ()
Additional contact information
Saeid Bayat : Central Bank of the Islamic Republic of Iran
Sajad Ebrahimi : Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran
Omid Ghaderi : Sharif University of Technology

Journal of Money and Economy, 2017, vol. 12, issue 1, 1-21

Abstract: This paper uses monthly price indices of 448 items of manufacturing sector in 2004:4 to 2016:01, to study the effect of exchange rate and its volatilities on price setting behavior of manufacturing sectors. Given that, many manufacturing sectors in Iran need to import raw materials, intermediate and capital goods in their production process, it is expected that exchange rate variations affect price setting behavior indices (frequency and size of price changes) in various manufacturing sectors. The results show that an increase in the exchange rate and also an increase in the exchange rate volatility lead to an increase in the frequency of price changes. In addition, while the exchange rate, itself, does not affect the size of price changes, the exchange rate volatility negatively affects the size of price changes. That is, manufacturers’ response to the exchange rate increase is limited to an increase in the frequency of price changes, but an increase in the exchange rate volatility increases the frequency of price changes and decreases the size of price changes. Also, the frequency of price changes in manufacturing sectors with high level of competitiveness and low level of raw material inventory is positively affected by the exchange rate increase.

Keywords: Exchange rate; Frequency of Price Changes; Size of Price Changes; Monetary Policy (search for similar items in EconPapers)
JEL-codes: D22 E31 E52 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://jme.mbri.ac.ir/article-1-283-en.pdf (application/pdf)
http://jme.mbri.ac.ir/article-1-283-en.html (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mbr:jmonec:v:12:y:2017:i:1:p:1-21

Access Statistics for this article

More articles in Journal of Money and Economy from Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran Contact information at EDIRC.
Bibliographic data for series maintained by M. E. ().