Exchange Rate Pass-Through to Consumer Price Indexes and Import in Iran

Abstract

In this paper, an attempt is made to investigate the exchange rate pass-through to consumer and import price indexes by utilizing the Structural Vector Autoregressive (SVAR) model, Impulse Response Functions and Choleskey Ordering Variance Decomposition Analysis on a seasonal basis during 1990 to 2004. The results show that, the exchange rate pass-through to import price index is stronger in relation to consumer price index. This fact has relatively higher share of tradable goods in import conformity with the price index as compared to the consumer price index as a whole. On the other hand, the impact of money supply shocks on the consumer price index in comparison with import price index is much stronger and faster. This phenomenon is important for the monetary policy makers. So the low amount of exchange rate pass- through provides more opportunity to follow an independent monetary policy, specially, through inflation targeting approach.