The Effect of News on the Major Food Groups Price Volatility in Iran: an Application of non-linear GARCH Models

Today most people believe that news affects the market and due to the progress in technology, detail of global and local events reflected on the top of market activities. In this context, the aim of this study is evaluation of the news effect on price volatility of the major food groups including: meat, cereals and bread, oils and fats, dairy and eggs in Iran. So, non-linear GARCH type models were applied using monthly consumer price index data from April 2002 to March 2015. We carry out the EGARCH, GJR-GARCH, TGARCH, SAGARCH, PGARCH, NGARCH, APGARCH and NPGARCH models to describe asymmetric effects of news. Results revealed the EGARCH(1,1) for meat, GJR-GARCH(1,1) for cereals and bread, TGARCH(1,1) for oils and fats and GJR-GARCH(1,1) for dairy and birds eggs were, best model. The αβ parameters, as stability measure, for all four food groups are higher than 0.91, which indicates stability of news effect on cereals and bread market is more than other groups. In other words, impact of releases news (shocks) decays slowly and gradually and it can be concluded that there is long-term effect on major food group’s prices. Therefore it is recommended that the policy-makers and economists pay more attention to control of news, so that the news spread in the food market, particularly cereals and bread groups.