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The Impact of Exchange Rate Pass-Through on Implicit Price Index of Iran's Agriculture Sector: An Application of M-GARCH and Threshold Regression Models

Author

Listed:
  • Abdi Seyyedkolaee , Mohammad

    (Ph.D. Candidate in Economics, University of Mazandaran)

  • Tehranchian, Amirmansour

    (Associate Professor of Economics, University of Mazandaran)

  • Jafari Samimi, Ahmad

    (Professor of Economics, University of Mazandaran)

  • Mojaverian, Seyyed Mojtaba

    (Associate Professor of Agricultural Economic, Sari University of Agricultural Sciences and Natural Resources)

Abstract

The impact of exchange rate changes on prices called "Exchange Rate Pass-Through (ERPT)" is an important issue in economics. Changes in the exchange rate can affect agricultural product prices through the import prices of raw materials. Also, the dependency of the agricultural exports on the exchange rate can accelerate this relationship. Bearing in mind the strategic position of agricultural products, dealing with the above issue should be highly regarded by the agricultural sector policymakers. The purpose of the present paper is to study the impact of ERPT on the implicit price index of Iran's agriculture sector. It also deals with the possibility of any threshold value for the exchange rate from 1971-2014 .To do so, using time series data from the Central Bank of Iran, Multivariate Generalized Autoregressive Conditional Heteroskedasticity (M-GARCH) and Threshold Regression (TR) models have been estimated. The estimation results indicate that the past shocks of nominal exchange rate had a positive impact on the agriculture implicit price index. Also, the findings of the threshold regression estimation show that applying ERPT to implicit price index of agriculture products revealed a threshold value of 9226 Rials. In other words, an increase in the exchange rate higher than the threshold level will cause a much higher increase in the implicit price index of agriculture products in Iran.

Suggested Citation

  • Abdi Seyyedkolaee , Mohammad & Tehranchian, Amirmansour & Jafari Samimi, Ahmad & Mojaverian, Seyyed Mojtaba, 2017. "The Impact of Exchange Rate Pass-Through on Implicit Price Index of Iran's Agriculture Sector: An Application of M-GARCH and Threshold Regression Models," Quarterly Journal of Applied Theories of Economics, Faculty of Economics, Management and Business, University of Tabriz, vol. 3(4), pages 101-128, February.
    • Handle: RePEc:ris:qjatoe:0060
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    More about this item

    Keywords

    Exchange rate pass-through; Implicit price index; Agriculture sector; M-GARCH; Threshold regression;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General

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