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

Author

Listed:
  • Ali Taiebnia

    (Assistant Professor of economics, Faculty of Economics, University of Tehran)

  • Armaghan Rahimi

    (MA in Economics, Faculty of Economics, University of Tehran)

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.

Suggested Citation

  • Ali Taiebnia & Armaghan Rahimi, 2007. "Exchange Rate Pass-Through to Domestic Prices in Iran (1990-2006)," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 12(3), pages 85-108, fall & wi.
    • Handle: RePEc:eut:journl:v:12:y:2007:i:3:p:85
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    References listed on IDEAS

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    1. Feinberg, Robert M, 2000. "The Role of International Discipline in Three Developing Economies: Exchange Rate Effects on Domestic Prices in Colombia, Korea, and Morocco," Review of International Economics, Wiley Blackwell, vol. 8(1), pages 126-133, February.
    2. José Manuel Campa & Linda S. Goldberg, 2005. "Exchange Rate Pass-Through into Import Prices," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 679-690, November.
    3. Robert M. Feinberg, 2000. "The Role of International Discipline in Three Developing Economies: Exchange Rate Effects on Domestic Prices in Colombia, Korea, and Morocco," Review of International Economics, Wiley Blackwell, vol. 8(1), pages 126-133, February.
    4. Athukorala, Premachandra, 1991. "Exchange rate pass-through : The case of Korean exports of manufactures," Economics Letters, Elsevier, vol. 35(1), pages 79-84, January.
    5. Choudhri, Ehsan U. & Faruqee, Hamid & Hakura, Dalia S., 2005. "Explaining the exchange rate pass-through in different prices," Journal of International Economics, Elsevier, vol. 65(2), pages 349-374, March.
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