The Effect of Macroeconomic Variables on Food Inflation in Iran: An ‎Application of Structural Vector Error Correction Model (SVECM)‎

Food prices are interested policymakers because of its vital roles food security. Agriculture and food prices like other economic sectors will be affected by macroeconomic policies. Hence, governments usually used fiscal and monetary policies to control food inflation. The purpose of this study is investigating the effect of macroeconomic factors on food prices in Iran. In fact, this article looks for answering this question that food inflation is affected by which of macroeconomic variables. Therefore, structural vector error correction model (SVECM) is utilized for period of 1978-2011. The results showed that in short-run food inflation has significant and positive effect on food inflation and value-added has significantly negative effect. In the long-run agricultural value-added has negative and significant effect on food inflation and money supply has significantly positive effect. In fact, food inflation shock increases food inflation in short-run (0.0206). Also rising agriculture value-added causes decreasing food inflation in short-run and long-run amount 0.0186 and 0.0149 respectively. Also money supply increases food inflation in long-run (0.0723).