An Investigation into the Threshold Effect of the Exchange Rate on Inflation of Non-oil Export Goods in Iran

Document Type : Original Article

Authors

1 Ph.D. Candidate in Economics, International Campus of Ferdowsi University of Mashhad, Mashhad, Iran

2 Assistant Professor of Economics, Faculty of Economics and Administrative Sciences, Ferdowsi University of Mashhad, Mashhad, Iran,

3 Assistant Professor of Economics, Faculty of Economics and Administrative Sciences, Ferdowsi University of Mashhad, Mashhad, Iran

10.29252/ecoj.10.2.11

Abstract

Non-oil exports are one of the important components of the Iran’s export. In this regard, currency depreciation is one of the ways to achieve the higher level of non-oil exports. The purpose of the present study is to provide a new insight into the way the exchange rate influences the inflation of non-oil exports prices. For this purpose, a threshold vector autoregression model was used to study the non-linear issue of exchange rate fluctuation in 1376:2-1395:4. According to the results of the research, the exchange rate shocks is associated with a positive response to the inflation rate of non-oil exports goods. Nevertheless, the impact of the shock before and after the 0.8% seasonal inflation is different. So if inflation of exported goods exceeds the threshold, it will have a more positive reaction to the exchange rate shock. This result can be attributed to the dependence of the production of Exported goods on imported intermediate goods. Accordingly, creating international competitiveness of non-oil exports with currency depreciation cannot be expected.

Keywords

References

- Abdi Seyyedkolaee, M., Tehranchian, A. M., Jafari Samimi, A., & Mojaverian, M. (2016). The Impact of Exchange Rate Pass-Through via Domestic Prices on Inflation in Iran: New Evidence from a Threshold Regression. International Journal of Business and Development Studies, 8(1), 77-96.
-      Abeysinghe, T., & Yeok, T. L. (1998). Exchange rate appreciation and export competitiveness. The case of Singapore. Applied economics, 30(1), 51-55.
-      Aleem, A., & Lahiani, A. (2014). A threshold vector autoregression model of exchange rate pass-through in Mexico. Research in International Business and Finance, 30, 24-33.
-      Asgharpour, H., Sojoodi , S., & Nasim, M.A. (2011). Exchange Rate Pass-Through to Non-oil Export Price of Iran. The Economic Research, 11(3), 111-134 (In Persian).
-      Athukorala, P. (1991). Exchange rate pass-through: The case of Korean exports of manufactures. Economics Letters, 35(1), 79-84.
-      Athukorala, P., & Menon, J. (1994). Pricing to market behaviour and exchange rate pass-through in Japanese exports. The Economic Journal, 104(423), 271-281.
-      Barhoumi, K. (2006). Differences in long run exchange rate pass-through into import prices in developing countries: An empirical investigation. Economic Modelling, 23(6), 926-951.
-      Bussière, M. (2007). Exchange rate pass-through to trade prices: the role of non-linearities and asymmetries. European Central Bank Working Paper No 822.
-      Cheikh, N. B., & Louhichi, W. (2016). Revisiting the role of inflation environment in exchange rate pass-through: A panel threshold approach. Economic Modelling, 52, 233-238.
-      Choudhri, E. U., & Hakura, D. S. (2015). The exchange rate pass-through to import and export prices: The role of nominal rigidities and currency choice. Journal of International Money and Finance, 51, 1-25.
-      Eisa Zadeh Roshan. Y. (2015). Exchange rate pass-through, case study of Iran. Quarterly Journal of the Macro and Strategic Policies, 3(10), 89-106 (In Persian).
-      Gholami Z., & Hozhabr Kiani, K. (2015). Investigation of Fiscal Stimulus Programs Effects on Economic Growth in Iran Using TVAR model. Journal of Applied Economics Studies in Iran, 4(13), 127-143.
-      Hahn, E. (2003). Pass-Through of External Shocks to Euro Area Inflation. ECB Working Paper No. 243.
-      Josip, T., Petra, P. (2009). Threshold Autoregressive model of exchange rate pass-through effect: the case of Croatia. Eastern European Economics, 47, 43–59.
-      Hoque, M. M., & Razzaque, A. (2004). Exchange Rate Pass-Through in Bangladesh's Export Prices: An Empirical Investigation. The Bangladesh Development Studies, 30(1), 35-64.
-      Knetter, M. (1993). International Comparisons of Pricing to Market Behavior. American Economic Review, 83(3), 473-486.
-      Laflèche, T. (1997). The impact of exchange rate movements on consumer prices. Bank of Canada Review, 1996(Winter), 21-32.
-      Lo, M. C., & Zivot, E. (2001). Threshold cointegration and nonlinear adjustment to the law of one price. Macroeconomic Dynamics, 5(4), 533-576.
-      McCarthy, J. (2007). Pass-through of exchange rates and import prices to domestic inflation in some industrialized economies. Eastern Economic Journal, 33(4), 511-537.
-      Mehrabi, Bashr Abadi, H., Jalaie, S.A.B., & Koushesh, S.M. (2010). Examined the exchange rate on prices of imported goods and exported in Iran. Journal of Macroeconomics, 6(12), 201-216 (In Persian).
-      Ohno, K. (1989). Export Pricing Behaviour of Manufacturing: A U.S.-Japon Compariso. IMF Staff Papers, 36(3), 550-579.
-      Sadat Hoseyni, N., Asgharpur, H., Haghighat, J. (2018). Effect of Exchange Rate Pass-through on Import Price Index: Smooth Transition Regression Approach. Journal of Economic Research, 53(2), 57-75 (In Persian).
-      Shajari H., Tayebi S.K., & Jalalei S.A.A.M. (2005). Analysis of Exchnage Rate Pass-Through in Iran. Knowledge and Development, 16, 51-76 (In Persian).
-      Shambaugh, J. (2008). A new look at pass-through. Journal of International Money and Finance, 27(4), 560-591.
-      Stigler, M. (2010). Threshold cointegration: overview and implementation in R package version 0.7-2. URL. http://stat. ethz. ch/CRAN/web /packages/tsDyn/vignettes/ThCointOverview. pdf.
-      Tange, T. (1997). Exchange rates and export prices of Japanese manufacturing. Journal of Policy Modeling, 19(2), 195-206.
-      Taylor, J., (2000). Low inflation, pass-through and the pricing power of firms. European Economic Review, 44, 1389–1408.
-      Thuy, V., & Thuy, D. (2019). The impact of exchange rate volatility on exports in Vietnam: A bounds testing approach. Journal of Risk and Financial Management, 12(1), 6.
-      Vigfusson, R. J., Sheets, N., & Gagnon, J. E. (2007). Exchange Rate Pass-through to Export Prices: assessing some cross-country evidence. Review of International Economics, 17(1), 17-33.
Journal of Economics and Modelling
Volume 10, Issue 2 - Serial Number 38
September 2019
Pages 11-33

Files

Share

How to cite

Statistics