THE ASYMMETRY OF EXCHANGE-RATE PASS-THROUGH TO CONSUMER PRICES IN IRAN: MARKOV SWITCHING APPROACH

The main objective of this paper is to investigate the effects of positive and negative shocks of exchange rate (asymmetric exchange-rate pass-through) on consumer prices in Iran during 1981-2014. For this purpose, first, using the Markov-Switching model, the positive and negative shocks were extracted. Then, using the co-integration test of Johansen and Juselius, the asymmetry of exchange-rate pass-through to consumer prices in Iran, along with the effectiveness of nominal exchange rate variables, gross domestic production, the volume of liquidity and the degree of openness of the economy were investigated. The empirical findings indicated the exchange-rate pass-through to the consumer price is asymmetric. The results showed that, first, in Iran's economy, the exchange-rate pass-through on the consumer price is approximately 0.5 which is incomplete. Second, the degree of exchange-rate pass-through to the consumer price in the case of positive shocks of the exchange rate is significantly more than the negative shocks.