Measuring the Pass-through Effect of Global Prices to Domestic Prices of Selected Food Products in Iran

In the second half of 2010, the severe fluctuation of food prices has increased the number of poor people in the world. Therefore, the food prices have become important matter for many developing countries over the past decade. This study investigates how food commodities global prices are passed on to domestic prices in Iran. For this purpose, the Markov Switching Vector Autoregressive (MS-VAR) method and regime dependent impulse response functions and quarterly data for rice, wheat, sugar and vegetable oils were used. The results show that the MS-VAR model provides a suitable framework for modeling the price pass-through of these products. According to the findings, there is a considerable difference in the pass-through magnitude between the regimes. The pass-through extent in second regime is much higher than first regime for all products. In other words, the substantial change in the price pass-through mechanism has occurred with global food price crisis. Therefore, it is suggested that the relevant policies such as import tariffs and restrictions implement with respect to world prices and domestic prices reaction.