Exchange rate Pass-Through to Transportation Sector in Iran: An Autoregressive Distributed Lags (ARDL) Model

Over the past decades, Iran’s economy has experienced a lot of Exchange rate fluctuations and the shocks to the value of national currency have been one of the major causes of inflation and its subgroups. This paper estimates the exchange rate pass through in transportation subgroup of CPI using econometric techniques on a sample spanning from March 2002 to February 2021. Results of our ARDL Model suggest that the ERPT in this subgroup is incomplete, with 52 percent of the exchange rate variations passing through to prices in long run. The speed of pass-through is low and it takes 25 months to converge to long run equilibrium. The results suggest that a 10 percent depreciation of the domestic currency relative to USD increase transportation sector prices by about 1 percent in the first month. Also, changes in the prices of a basket of goods and services at aggregate level (inflation rate) and increase of gas prices have a positive effect on inflation in transportation sector.