The Impact of Exchange Rate Pass-Through on Implicit Price Index of Iran's Agriculture Sector: An Application of M-GARCH and Threshold Regression Models

Mohammad Abdi Seyyedkolaee (m_abdi1358@yahoo.com), Amirmansour Tehranchian (a.tehranchian@umz.ac.ir), Ahmad Jafari Samimi and Seyyed Mojtaba Mojaverian (mmojaverian@yahoo.com)
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Mohammad Abdi Seyyedkolaee: Ph.D. Candidate in Economics, University of Mazandaran
Amirmansour Tehranchian: Associate Professor of Economics, University of Mazandaran
Seyyed Mojtaba Mojaverian: Associate Professor of Agricultural Economic, Sari University of Agricultural Sciences and Natural Resources

Quarterly Journal of Applied Theories of Economics, 2017, vol. 3, issue 4, 101-128

Abstract: The impact of exchange rate changes on prices called "Exchange Rate Pass-Through (ERPT)" is an important issue in economics. Changes in the exchange rate can affect agricultural product prices through the import prices of raw materials. Also, the dependency of the agricultural exports on the exchange rate can accelerate this relationship. Bearing in mind the strategic position of agricultural products, dealing with the above issue should be highly regarded by the agricultural sector policymakers. The purpose of the present paper is to study the impact of ERPT on the implicit price index of Iran's agriculture sector. It also deals with the possibility of any threshold value for the exchange rate from 1971-2014 .To do so, using time series data from the Central Bank of Iran, Multivariate Generalized Autoregressive Conditional Heteroskedasticity (M-GARCH) and Threshold Regression (TR) models have been estimated. The estimation results indicate that the past shocks of nominal exchange rate had a positive impact on the agriculture implicit price index. Also, the findings of the threshold regression estimation show that applying ERPT to implicit price index of agriculture products revealed a threshold value of 9226 Rials. In other words, an increase in the exchange rate higher than the threshold level will cause a much higher increase in the implicit price index of agriculture products in Iran.

Keywords: Exchange rate pass-through; Implicit price index; Agriculture sector; M-GARCH; Threshold regression (search for similar items in EconPapers)
JEL-codes: C22 F31 Q10 (search for similar items in EconPapers)
Date: 2017
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