The Effect of Oil Price Volatilities on Food Price Index in Iran

Simultaneous variations between world oil price and food prices leads to stimuli scientists to investigate the effect of raising oil price on food prices. The main purpose of this paper is to examine the effect of oil price volatilities on the food price index for the 1990-2006 periods in Iran. To achieve this goal, a vector auto-regression (VAR) model, impulse response function and a auto-regressive distributed lags (ARDL) model have used. The results of impulse response function show that oil price volatilities have no effect on food prices in Iran. . Moreover, results from ARDL model implies that there is no significant relationship between oil price and food prices in the short term and long term. This result may be due to subsidies paid by the government to energy section that prevent any price changes.