Asymmetric Effects of Exchange Rate Changes in Iran

One of the main issues in international finance is the ratio of exchange rate pass through to consumer prices. The main objective of this study is to examine the exchange rate fluctuations and its asymmetric effect on consumer prices in Iran’s economy. In the present study, the effects of positive and negative impacts of the exchange rate on inflation rate and other macroeconomic variables of Iran during the period from 1988 to 2017, in the framework of a recursive VAR model have investigated. The results indicate that exchange rate pass through in the short run is 33.5% and in the long run is 43.03%, which indicates that the exchange rate is incomplete. In addition, the results indicate the asymmetric effect of the exchange rate, which is about 38.43% increase in the exchange rate and 16.38% decrease in the exchange rate negatively reflected in consumer price inflation.