Commodity prices and inflation: an application of structural VAR

ABSTRACT

The potential influence of global commodity prices on consumer price inflation has been a concern of researchers and policymakers for decades. Even though a body of literature has investigated such connections, the results are mixed. This study uses a structural vector autoregressive (SVAR) model to investigate the impact of global commodity prices on Iran’s inflation over the 2009:1-2018:11 period. We have included commodity price, exchange rate, and stock returns as explanatory variables in our model. Based on the findings of our long-run multiplier matrix the response of inflation to the commodity price shocks is positive and statistically significant. In other words, global commodity prices increase Iranian inflation. Also, the results suggest that the explanatory power of commodity price shocks in inflation fluctuations is higher than those of exchange rate and stock returns in the long run.

KEYWORDS:

• Commodity prices
• inflation
• structural vector autoregressive (SVAR) model
• Iran

JEL CLASSIFICATION:

• C22
• E31
• E44

Disclosure statement

No potential conflict of interest was reported by the author(s).