The Impact of Monetary Shocks on Food Price in Iran

Abstract

Given the large weight of food in the households’ consumption basket and its limited substitutability with other goods, food price fluctuations are of sizeable impacts on overall consumer prices. The reaction of the food prices to monetary shocks has been the subject of much empirical researches in the recent years. This study examines the impact of monetary shocks on food prices in Iran. To do this, the study adopts Johansen-Juselius and Error-Correction models using time-series data over the period 1973-2008. Using Hodrick-Prescott filter, the monetary shocks were obtained. The results showed that in the long-run positive monetary shocks have significant effects on food prices in Iran. Therefore, policies and strategies should be such that minimize the negative effects of monetary shocks on the food prices.

Keywords

• monetary shocks
• price
• food
• iran