Survey of the Effect of Agricultural and non-Agricultural Trade on Inflation Rate in Iranian economy

The goal of this study is survey the effect of trade in agricultural and non-agricultural sector, separately, on inflation rate in Iran. To this end, a vector error correction model (VECM) has been estimated using 1360-90 time series data. Results of this study indicate that trade variables have a significant influence on inflation rate in Iran and it is essential to enter them in the models which assess the factors affecting inflation, so that these variables improve the explanatory power of models and reliance on the precision of estimated coefficients. The results of this study show that the ratio of export to agricultural and non-agricultural products has positive long-run effects on inflation whereas the ratio of import to agricultural consumptions has a negative long- run effects on inflation. Also, based on the results, exchange rate has a significant positive long-run effect on inflation whereas growth of liquidity affects the inflation in the short run. Finally, in the present study, it has been suggested that the best strategy for reducing the gap between demand and supply, is to increase production through improving productivity, so, in this manner, inflation growth reduced without any requirement to increase import and reduce export. Also, control of the liquidity and the exchange rate growth has been introduced as the other strategies for reducing inflation.