An Empirical Analysis of Exchange Rate Pass-Through to Iran's Saffron Export Price

Document Type: Research Paper

Authors

Shahid Bahonar University of Kerman

Abstract

Exchange rate pass-through to the price of traded goods is one of the important issues in economy of developing countries such as Iran and affects the efficiency of the exchange rate policies to improve the trade balance. The main aim of this paper is to empirically analyze exchange rate pass-through to Iran's saffron export price using panel data for twenty destination markets during 2000–2011. Utilizing the system generalized method of moments and controlling endogeneity of several explanatory variables, the estimation results showed that exchange rate pass-through was incomplete. Considering incomplete pass-through of exchange rate to Iran's saffron export price, it is concluded that Iranian exporters are able to discriminate price among destination markets and can absorb a portion of the change in the exchange rate in order to maintain or increase market share. The results also suggest that Iranian exporters partially offset the effect of tariff rate on saffron export price. Another important result is that macroeconomic environment in destination markets plays an important role in determining the Iran's saffron export price.

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