Asymmetric Effects of Exchange Rate and Oil Price Changes on Food and Agricultural Product Prices in Iran: Application of NARDL Approach

 Despite the positive effects of the liberalization of economic activity around the world, the Iranian government still has a major share in the country's economy. However, almost all economists agree on the low efficiency of government economic activities. Restricting government involvement in these activities is a move that has been proposed and pursued by the World Bank and other global economic organizations, especially in recent decades. One of the policies recently proposed to reduce government interference in the Iranian economy is the elimination of 42,000 Rials in the country. But reducing government interference in agricultural activities can have many positive and negative effects. One of these effects could be rising food prices. In recent years, the frequency of large food price increases has accelerated around the world. Due to the dramatic changes in food prices, there have been numerous studies postulated that the exchange rate and crude oil price instability are the main determinant of the food price crises in different countries. The exchange rate is at the center of the policy debate in both developed and developing economies. Therefore, the purpose of this study is to investigate the asymmetric effects of exchange rate changes on food price fluctuations in Iran. For this reason, the NARDL approach has been used.

 Due to the possibilities of asymmetric impact exits between the underlying variables (exchange rate and food price), the asymmetric Non-linear Unrestricted ARDL proposed by Shin et al. (2014) is widely used by the researchers, such as Ibrahim (2015) and Abdlaziz et al. (2016). The main purpose of this test was to test for the presence asymmetric effects in both long- and short-run relationships between economic time-series. Shin et al. (2014) applied the positive and negative partial sum decompositions to test the asymmetric effects. This asymmetric Unrestricted ARDL cointegration approach which allows the joint analysis of non-stationarity and non-linearity issues in the context of an unrestricted error correction model (ECM). In this study, in order to investigate the asymmetric effects of currency shock on food prices, the model introduced in the study of Wong and Shamsdin (2017) was used:

The findings of the study indicate several important relationships between key variables (oil price, per capita GDP, exchange rate, and trade liberalization) and food prices in Iran. Firstly, the study reveals that these variables exhibit long-run cointegration with food prices, suggesting a significant relationship between them. Secondly, the Unrestricted NARDL model demonstrates that exchange rates have a significant long-run asymmetric impact on food price changes in Iran. This implies that changes in the exchange rate can have a varying effect on food prices, depending on whether the exchange rate is appreciating or depreciating. Thirdly, the study finds that while long-run and short-run changes in oil prices do not have a significant impact on food prices in Iran, the long-run growth of per capita GDP and trade liberalization do have a significant impact on food price fluctuations. Specifically, the coefficients of the exchange rate variables indicate that a 1 percent increase in the exchange rate results in a 0.32 percent increase in the consumer food price index and a 1.05 percent increase in the producer food price index in the long run. The asymmetric impact of the exchange rate on Iranian food price fluctuations suggests that policymakers should prioritize stabilizing the national currency to manage the movement of food prices. This implies that economic policymakers, who aim to reduce inflation, protect vulnerable populations, and ensure food security, need to consider currency stability in their decision-making process. In addition to price liberalization, supportive policies should be implemented to prevent economic barriers to accessing food. Overall, these findings highlight the importance of understanding the relationships between key economic variables and food prices in Iran, and the need for policymakers to take these factors into account when making decisions regarding inflation, food security, and supporting vulnerable populations.

In this study, the focus was on investigating the asymmetric impact of oil price, real GDP, and exchange rates on food price fluctuations in Malaysia. The findings revealed that the exchange rate had a significant asymmetric effect on the movement of food prices, indicating its importance in understanding the current food market situation in Iran. This suggests that policymakers should prioritize addressing exchange rate issues rather than solely focusing on crude oil prices when formulating food price policies. The study emphasizes that stabilizing the national currency is of greater importance than controlling oil prices, as demonstrated by the research findings. Rising food prices have a detrimental impact on the economic access of vulnerable groups to sufficient food and pose a significant threat to food security. Therefore, it is recommended to pay attention to the positive relationship between increasing exchange rates and agricultural product prices. In the short term, it is essential to implement supportive policies to prevent a reduction in economic access to food. These policies should aim to address the challenges faced by vulnerable groups in accessing affordable food. By taking these measures, policymakers can mitigate the negative consequences of rising food prices and ensure food security for all.