Investigating the Economic Effects of Oil and Food Price Shocks on Macroeconomic Variables in Iran

Abstract

The purpose of this study is to investigate the economic effects of world food and oil price shocks on macroeconomic variables (industrial output growth, inflation, stock price indices, lending rate, and real exchange rate) in Iran. For this purpose, the Structural Vector Auto Regressive (SVAR) method is used to examine the autonomous and simultaneous effects of food and oil prices within 3 models. This study uses monthly data from 21th March 2001 to 20th March 2011. The results show that oil price shock has small effect on industrial output growth. The biggest effect of the oil and food price shocks is observed on the exchange rate. About 5 percent of the variation in oil and food prices is explained by inflation shock. Furthermore, results from the simultaneous study of shocks to the oil price and global food price indicate that oil shocks significantly affect global food prices.

Keywords

• svar
• price shock
• food
• oil
• macroeconomic variables