An Estimation of the Exchange Rate Pass-Through to Domestic Prices in The Iranian Economy: An Application of the Time-Varying Parameter Models
In the macroeconomics and international economics literature, the rate of change in domestic prices as a result of exchange rate changes is known as the degree of exchange rate pass-through. This is important because the shocks to the economy are transmitted from the exchange rate channel to the rel...
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| Format: | Article |
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Tarbiat Modares University
2021-03-01
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| Series: | پژوهشهای اقتصادی |
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| Online Access: | http://ecor.modares.ac.ir/article-18-42646-en.pdf |
| _version_ | 1797803184767369216 |
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| author | Ahmad Ezzati-Shourgoli Hassan Khodavaisi |
| author_facet | Ahmad Ezzati-Shourgoli Hassan Khodavaisi |
| author_sort | Ahmad Ezzati-Shourgoli |
| collection | DOAJ |
| description | In the macroeconomics and international economics literature, the rate of change in domestic prices as a result of exchange rate changes is known as the degree of exchange rate pass-through. This is important because the shocks to the economy are transmitted from the exchange rate channel to the relative prices of the economy. In addition, the degree of exchange rate pass-through is affected by microeconomic and macroeconomic variables, so that the degree of exchange rate pass-through will change along with their changes. Therefore, in the present study, the impact of exchange rate on domestic prices is estimated by using the Time-varying Parameter Factor Augmented Structural VAR with Stochastic Volatility (TVP-SFAVAR-SV) and applying seasonal data from 1990 to 2018. First, the latent variable of the amount of speculative activities in the Iranian economy is modeled and estimated. The results show that the highest speculation belongs to the periods 1994 -1996, 1998-1999 and 2011- 2012. Also, the shock to the speculative activities variable in the period under study has led to an increase in inflation. The estimated exchange rate pass-through coefficient has not been constant. Historical variance decomposition analysis of exchange rate pass-through in the presence of the effective factors also shows that the almost all exchange rate fluctuations can be explained by inflation and exchange rate fluctuations, and production gaps. |
| first_indexed | 2024-03-13T05:18:04Z |
| format | Article |
| id | doaj.art-45b3bd8f8dd047c0ac5de48e1acab41d |
| institution | Directory Open Access Journal |
| issn | 1735-6768 2980-7832 |
| language | fas |
| last_indexed | 2024-03-13T05:18:04Z |
| publishDate | 2021-03-01 |
| publisher | Tarbiat Modares University |
| record_format | Article |
| series | پژوهشهای اقتصادی |
| spelling | doaj.art-45b3bd8f8dd047c0ac5de48e1acab41d2023-06-15T20:25:08ZfasTarbiat Modares Universityپژوهشهای اقتصادی1735-67682980-78322021-03-012112962An Estimation of the Exchange Rate Pass-Through to Domestic Prices in The Iranian Economy: An Application of the Time-Varying Parameter ModelsAhmad Ezzati-Shourgoli0Hassan Khodavaisi1 Ph.D. in International Economics, Urmia University Associate Professor of Economics, Urmia University In the macroeconomics and international economics literature, the rate of change in domestic prices as a result of exchange rate changes is known as the degree of exchange rate pass-through. This is important because the shocks to the economy are transmitted from the exchange rate channel to the relative prices of the economy. In addition, the degree of exchange rate pass-through is affected by microeconomic and macroeconomic variables, so that the degree of exchange rate pass-through will change along with their changes. Therefore, in the present study, the impact of exchange rate on domestic prices is estimated by using the Time-varying Parameter Factor Augmented Structural VAR with Stochastic Volatility (TVP-SFAVAR-SV) and applying seasonal data from 1990 to 2018. First, the latent variable of the amount of speculative activities in the Iranian economy is modeled and estimated. The results show that the highest speculation belongs to the periods 1994 -1996, 1998-1999 and 2011- 2012. Also, the shock to the speculative activities variable in the period under study has led to an increase in inflation. The estimated exchange rate pass-through coefficient has not been constant. Historical variance decomposition analysis of exchange rate pass-through in the presence of the effective factors also shows that the almost all exchange rate fluctuations can be explained by inflation and exchange rate fluctuations, and production gaps.http://ecor.modares.ac.ir/article-18-42646-en.pdfexchange rate pass throughstochastic volatilitytime varying parameter vector auto-regressive modelinflationhistorical variance decomposition |
| spellingShingle | Ahmad Ezzati-Shourgoli Hassan Khodavaisi An Estimation of the Exchange Rate Pass-Through to Domestic Prices in The Iranian Economy: An Application of the Time-Varying Parameter Models پژوهشهای اقتصادی exchange rate pass through stochastic volatility time varying parameter vector auto-regressive model inflation historical variance decomposition |
| title | An Estimation of the Exchange Rate Pass-Through to Domestic Prices in The Iranian Economy: An Application of the Time-Varying Parameter Models |
| title_full | An Estimation of the Exchange Rate Pass-Through to Domestic Prices in The Iranian Economy: An Application of the Time-Varying Parameter Models |
| title_fullStr | An Estimation of the Exchange Rate Pass-Through to Domestic Prices in The Iranian Economy: An Application of the Time-Varying Parameter Models |
| title_full_unstemmed | An Estimation of the Exchange Rate Pass-Through to Domestic Prices in The Iranian Economy: An Application of the Time-Varying Parameter Models |
| title_short | An Estimation of the Exchange Rate Pass-Through to Domestic Prices in The Iranian Economy: An Application of the Time-Varying Parameter Models |
| title_sort | estimation of the exchange rate pass through to domestic prices in the iranian economy an application of the time varying parameter models |
| topic | exchange rate pass through stochastic volatility time varying parameter vector auto-regressive model inflation historical variance decomposition |
| url | http://ecor.modares.ac.ir/article-18-42646-en.pdf |
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