The Impact of Inflationary Environment on Exchange Rate Pass- Through on Export Prices in Iran

Document Type : Research Article

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Abstract

The main objective of this study is to investigate the impact of inflationary environment on the degree of exchange rate pass through in Iran over the period 1975-2009. For this purpose, first high and low inflation regimes has been derived using the Markov–Switching model and then, the impact of inflationary environments on exchange rate pass through to export prices have been estimate using Johansen- johansen juselius cointegration technique.  The empirical findings show that the environment inflationary impact has symmetric effects on the degree of exchange rate pass- through to export prices a, so that the high inflationary environment, the degree of exchange rate pass through is 0/77% and low inflationary environment, the degree of cross rates of exchange is 0/51 percent. Also, the empirical results show that marginal cost of partners and openness have a positive and negative and significant impact on the export prices in Iran, respectively. The overall conclusion is that in the high inflationary environment, the degree of exchange rates pass- through has been increased and consequently export competitiveness has declined. Therefore, the rise in exchange rates, especially in high inflationary environment there is not suitable policy for export development.

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