A Non-Linear Investigation of Exchange Rate Pass-Through into the Import Price with an Emphasis on the Role of Inflation Volatility in Iran

Mana Mesbahi (), Hossein Asgharpur () and Jafar Haghighat ()
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Mana Mesbahi: Ph.D. Candidate in Economics, University of Tabriz
Jafar Haghighat: Professor of Economics, University of Tabriz

Quarterly Journal of Applied Theories of Economics, 2018, vol. 5, issue 2, 27-54

Abstract: This article mainly aims to investigate the effects of the fundamental and environmental variables on the degree of exchange rate pass-through (ERPT) into the import price during 1990:3 to 2014:1. Therefore, at first, the effect of exchange rate along with the effects of marginal cost in abroad, the degree of openness of economy and gross domestic production on the import price were investigated by using of Markov-Switching model. The experimental findings indicate that there are two regimes for the degree of ERPT into the import price of Iran; i.e. the low price regime and the high price regime and for both regimes the degree of ERPT is more than one unit. In the next stage, the inflation volatility was quantified as one of the most important factors dominating Iran economy by the use of MS-GARCH approach. After that its effect, along with the effect of fundamental variables on the degree of ERPT were evaluated. The findings show that with the emergence of inflation volatility in Iran economy, the degree of ERPT into import price will increase in both regimes

Keywords: The import price regime; Exchange rate pass-through; Inflation volatility; Markov-Switching; MS-GARCH (search for similar items in EconPapers)
JEL-codes: C22 E42 F31 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:ris:qjatoe:0107

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