The Asymmetric Exchange Rate Pass-Through to Import Price Index: The Case Study of Iran

The main objective of this paper is to investigate the asymmetric effects of exchange rate on import price index in Iran using quarterly time series data over the period 1990- 2011. For this purpose, positive and negative shocks of the exchange rate have been separated from each other using dummy variables and the effects of the size of the exchange rate shocks by determining a threshold. The empirical results indicate that the positive and negative shocks of the exchange rate both have positive and asymmetric effects on the import price index. The results show that the effect of negative shocks of the exchange rate on the imports price index is more than the positive shocks effect. In addition, the experimental findings of the research indicate that the effect of foreign exchange rate shocks size on the imports price is asymmetric and the effectiveness extent of smaller shocks is significantly more than that of bigger exchange rate shocks. Moreover, according to the results, the effects of positive and negative shocks based on the size of foreign exchange shocks (small & big) on the imports price is asymmetric and the results show that the effect of small negative shocks is more than big ones and also the effects of small positive shocks is more than big ones.