The effect of rising exchange rate on the household Expenditure of the through of imports: An input-output analysis

Document Type : Research Article

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Abstract

The exchange rate is one of the most important variables in the economy and many variables are strongly affected by the exchange rate changes. Household expenditure is one of these macroeconomic variables. Input-Output approach is an appropriate method to model the impact of exchange rate changes on household expenditure but the classification of household expenditure is based on COICIP but the classification of IO table is based on ISIC. In order to that, we have made an adoption between COICOP and ISIC classification. It is the main contribution of this article. Then we enter the Import into our price model of IO table and measure the effects of exchange rate depreciation on the producing price index (PPI) and -after adopting ISIC with COICIP- on the household expenditure. This article shows that a depreciation of 20, 30, or 50 percent in the exchange rate, respectively cause an increase of 3.16, 4.74, and 7.9 percent in the urban household expenditure. The rural household expenditure respectively increases 3.85, 5.77, and 9.62 percent. While the absolute increase for the urban household is 1.36 times more than rural. The most increase in household expenditure related to expenditure on textile and after that cooking oil. While the least increase in costs occurs in fruits and vegetables.

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