The purpose of this paper is to examine an empirical method and identify the
possible linkage between energy consumption and commodity prices in the context
of Iran"es agriculture. Different linear and non-linear models are estimated using
quarterly data over 26 years from the second quarter of 1991 to the first quarter
of 2017. Our results confirm the asymmetric impact of energy consumption shocks
on agricultural commodity prices. Results of the Markov switching model show
that agricultural prices respond negatively to any shock from energy consumption
whereas, the effect of energy consumption on agricultural commodity prices in the
high inflation rate regime is less than the low inflation rate regime. The empirical
evidence indicates that the probability of remaining in the high inflation rate
regime equals 93%, which is more than the other regime. The agricultural
inflation rate is low and in 36 seasons and high in 63 seasons. Additionally, this
study found an asymmetry in the agricultural price volatilities due to most of the
coefficients changing across regimes.
Keywords
Agricultural prices, Energy consumption, Inflation Markov-switching autoregressive model, Iran