Investigating the impact of inflation uncertainty on prices of agricultural products

Inflation rate in Iran has been a growing concern despite the intense struggles, gradually becoming the country’s economic problem. This study investigated the influence of inflation uncertainty on priceindexes of agricultural products using time series data of 1974-2007. The inflation uncertainty is estimated applying GARCH models. The desired model was evaluated by vector autoregression(VAR). Impulse response functions (IRF) and variance decomposition has also been checked. Impulse response functions in the agricultural sector against shocks from factors of value-added agriculture, degree of trade freedom, real exchange rate, the volume of liquidity, inflation uncertainty and the consumer price index to price index of agricultural products during ten periods in the future were examined.The variance decomposition results indicated that the agricultural sector in the short-term, mid-term and long-term, more volatility prices of agricultural products are explained by shocks. Results also revealed that from the VAR test in the agricultural sector indicated that inflation uncertainty together with other variables positively and significantly affects the price index of agricultural products. Thus, this variable should be taken to account in order to analyze price behavior of agricultural products and their determinants.