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Conditional Exchange Rate Pass-Through (ERPT) to Import Prices and Effects of a Change in Variance of the Shocks on ERPT: A DSGE Approach

Document Type : Quarterly Journal

Authors

1 Ph.D. Student of Economics, Allameh Tabatabaii University, Tehran, Iran

2 Associate Professor of Economics, Allameh Tabatabaii University, Tehran, Iran

Abstract

In this paper, for analysis of exchange rate pass-through (ERPT) to import prices, a structural dynamic stochastic general equilibrium model is used and exchange rate is considered as an endogenous variable not exogenous. Therefor we can calculate exchange rate pass-through conditional on each shock. The advantage of this approach is that it shows to policy makers that ERPT conditional on each shock is different and policy maker should take the cause of the change, into account. Hence a dynamic stochastic general equilibrium model for Iran is presented and calibrated. Then by impulse response functions, ERPT conditional on different shocks (technology, oil revenues, foreign output, money demand, foreign interest rates and monetary policy shocks) has derived. Also, a test for the effects of the changes in variance of each shock on the degree of conditional ERPT has been performed. The standard deviations of the shocks affect the scale of the impulse-response functions, but not their shape. This means that the relative magnitude ofthese responses and conditional measures of pass-through will not be altered by changes in the variance of theshocks.

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References
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Economic Growth and Development Research
Volume 8, Issue 31
June 2018
Pages 45-60
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History
  • Receive Date: 03 January 2017
  • Revise Date: 07 June 2017
  • Accept Date: 05 July 2017
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