Conference Paper
Pricing Behavior and Exchange Rate: Evidence from Iran Consumer Prices
No.
ERF_31_MC167
Publisher
ERF
Date
March, 2025
Topic
E. Macroeconomics and Monetary Economics
This paper provides new evidence on the impact of exchange rate growth on pricing behavior. Using comprehensive micro data on consumer price quotes in Iran from 2006 to 2022, we examine how prices adjust in response to different macroeconomic conditions, ranging from low to high inflation and from stable exchange rate to sudden exchange rate jumps. While previous studies mostly focused on the impact of inflation on the pricing behavior, this research highlights the distinct role of exchange rate growth. Our key findings are: (1) In the short run, pricing behavior responds more strongly to inflation than to exchange rate growth, but in the long run, this difference disappears. (2) The impact of exchange rate growth is driven by both expected inflation and cost shocks, with cost shocks remaining significant even after controlling for expected inflation. (3) Expected inflation influences pricing behavior independently of actual inflation. (4) Expected exchange rate growth increases the absolute size of price changes but does not affect the frequency. (5) Provincial inflation has a distinct effect on pricing behavior compared to national inflation.
Authors
Hamidreza Aziminia
PhD Candidate, Sharif University of Technology
Authors
Seyed Ali Madanizadeh
Associate Professor, Sharif University of Technology
Authors
Amineh Mahmoudazdeh
Assistant Professor, Sharif University of Technology