Economic-Security Effects of Global Oil and Food Price Shocks on Iran’s Inflation using Global Vector Autoregressive (GVAR) Model

The management of external shocks as a source of inflationary pressures is a prerequisite for economic security. In this regard, the present paper estimates a global vector autoregressive (GVAR) model for 34 developed and developing countries over the period 1988-2013. These countries consist more than 80 percent of world GDP, and also they provide 80 percent of Iran’s imports. The main results of this paper are as follows. 1) The global food price shocks have a positive effect on Iran’s inflation, while the effect of oil price changes is negative. 2) Iran’s inflationary vulnerability is higher than other countries, and also it increases in the long run. 3) There is a co-movement relationship between the oil price and the food price. However, the effect of food shocks is greater than the effect of oil shocks in both short run and long run; so that Iran’s inflation increases 1 to 1.5 percent with 10 percent simultaneous increase in the prices of oil and food.