Abstract
The main purpose of this paper is to examine the effects of macroeconomic shocks in particular exchange rate shocks on Consumer Price Index (CPI) and 12 main subgroups of CPI. Our empirical model is a seven variable Vector Autoregressive (VAR) model, incorporating pricing along a distribution chain proposed by McCarthy (2007). The results of historical decomposition and impulse-response anaysis show that contribution of exchange rate shocks and domestic producer prices shocks to headline inflation is more significant in respect to other macroeconomic shocks.
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