Government policies in managing food price anomalies: Evidence from Iran

Food price volatility presents a persistent policy challenge for resource-dependent economies, particularly during periods of global shocks and country-specific external pressures, such as international sanctions in the case of Iran. This study examines the effectiveness of two major policy instruments -exchange rate management and monetary policy- in mitigating food price anomalies in Iran. Using seasonal data from 2004 to 2022 and employing the Autoregressive Distributed Lag (ARDL) model, the research identifies the key drivers of food price anomalies and evaluates the relative and joint impact of exchange rate depreciation and money supply growth. Results show that the most severe anomalies coincided with global crises (2007–2008, 2011, 2020, 2022) and intensified sanctions (2011–2012, 2018). Exchange rate depreciation and expansionary monetary policy significantly increased anomalies in both the short and long run, while higher import volumes helped dampen price fluctuations. Notably, monetary policy exhibited the strongest and most persistent effect. The error correction mechanism indicates a slow adjustment process, suggesting long-lasting impacts of shocks. The study recommends greater coordination between monetary and exchange rate policies, along with fiscal discipline, exchange rate unification, subsidy reforms, inflation-aligned interest rates, and strengthened strategic reserves to enhance resilience in Iran’s food market.