Volume 12, Issue 1 (Winter 2017)                   J. Mon. Ec. 2017, 12(1): 1-21 | Back to browse issues page

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Bayat S, Ebrahimi S, Ghaderi O. The Effects of Exchange Rate on Price-Setting in Manufacturing Sector: Applying Price Micro Data of Iran. J. Mon. Ec.. 2017; 12 (1) :1-21
URL: http://jme.mbri.ac.ir/article-1-283-en.html
1- Central Bank of the Islamic Republic of Iran
2- Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran
3- Sharif University of Technology
Abstract:   (1961 Views)
This paper uses monthly price indices of 448 items of manufacturing sector in 2004:4 to 2016:01, to study the effect of exchange rate and its volatilities on price setting behavior of manufacturing sectors. Given that, many manufacturing sectors in Iran need to import raw materials, intermediate and capital goods in their production process, it is expected that exchange rate variations affect price setting behavior indices (frequency and size of price changes) in various manufacturing sectors. The results show that an increase in the exchange rate and also an increase in the exchange rate volatility lead to an increase in the frequency of price changes. In addition, while the exchange rate, itself, does not affect the size of price changes, the exchange rate volatility negatively affects the size of price changes. That is, manufacturers’ response to the exchange rate increase is limited to an increase in the frequency of price changes, but an increase in the exchange rate volatility increases the frequency of price changes and decreases the size of price changes. Also, the frequency of price changes in manufacturing sectors with high level of competitiveness and low level of raw material inventory is positively affected by the exchange rate increase.
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Type of Study: Original Research - Theoric | Subject: Monetary Economics
Received: 24 Jul 2018 | Accepted: 4 Sep 2018 | Published: 11 Mar 2019

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