The Role of Inflation Regime in the Exchange Rate Pass-Through to stock price in Iran: Markov-swiching Approach

The main objective of this study was to examine the impact of Inflation Regime on the Pass-Through to stock price in Iran, Using time series data monthly from the march 2009 to feb 2016. Then, we used the Markov-Switching model for extraction of high and low inflationary environments and Then we tested the impact of inflationary environments with the influence of liquidity, oil prices and nominal exchange rate impact on stock price index by using co integration Johansen- Juselius method, Results showed that the inflationary environments have the asymmetric impact on the degree of exchange rate crossing over the stock price, so in an environment with high inflation, the Exchange Rate Pass-Through was 89%, and in an environment with low inflation, the exchange rate crossing was 57% Also the results indicated that liquidity and oil prices have significant and positive impact on the stock price index and nominal effective exchange rate has a significant and negative impact on the stock price index. Due to Intensify the degree of crossing the exchange rate of inflation environments and its negative impact on the stock price, especially in high inflationary conditions, it’s not appropriate policy for development and contributes to capital markets.