Exchange Rate Pass-Through in Pricing Chain in Iran

Effects of exchange rate on pricing chain are a challenging issue in the Iranian economy. Depending on the extent to which every price may be affected، changes in the exchange rate can have impacts on relative prices. In this paper we have examined the effects of changes in the exchange rate on pricing chain. To assess exchange rate pass-through in pricing chain، we have used time series data for 1990:2-2007:1. Our results show that exchange rate pass-through in pricing chain is «imperfect» such that in moving from import prices to consumer prices the pass-through is more imperfect. This shows that an increase in exchange rate will have a positive effect on trade balance in the form of substitution of imported goods with homemade ones. The results show that after an increase in the exchange rate in Iran، the relative prices will change in favor of homemade goods. Our results show that less than an increase in exchange rate will pass-through in producer and consumer prices in Iran، hence especially in the long run the production costs will increase less than what will be in the imported goods.