The Causal Relationship between Producer Price Index and Consumer Price Index: Empirical Evidence from Selected European Countries

Abstract

<p>The purpose of this study is to examine the causal relationship between Producer Price Index and Consumer Price Index for the five selected European countries, using seasonally adjusted monthly data from August 1995 to December 2007. Toda and Yamamoto causality test (1995) are employed to investigate causality. The results indicate that there is a unidirectional causality between producer price index and consumer price index, running from producer price index to consumer price index in Finland and France and bidirectional causality between two indices in Germany. In the case of the Netherlands and Sweden, no significant causality is detected.</p

Does Economic Growth Lead Employment in South Africa?

“…This study utilizes the Toda-Yamamoto test of causality technique which makes use of the Vector Auto regression (VAR). Some of the advantages of this approach over the conventional Granger (1969) causality test include; no requirement for a pre-test of co-integration, the order of integration does not have to be the same and any of the series can be I (0), I (1) or I (2), as long as the order of integration is lower than or equal to the true lag length of the model (Toda & Yamamoto, 1995;Akcay, 2011). Testing Granger-causality using the conventional F-statistics can result in spurious causality, when one or more variables are non-stationary (He & Maekawa, 1999), but this is not the case for T-Y, where MWald statistics is used and the variables do not necessarily have to be stationary.…”

“…Testing Granger-causality using the conventional F-statistics can result in spurious causality, when one or more variables are non-stationary (He & Maekawa, 1999), but this is not the case for T-Y, where MWald statistics is used and the variables do not necessarily have to be stationary. Other benefits of T-Y causality test are that its results do not suffer from the lag effect and it does not give spurious result with invalid F-test whereas the conventional Granger causality test result changes as the lag length changes (Akcay, 2011). The importance of a country-specific study, as in this case, over a cross-country study is the danger in comparison where different countries use different measurements and different definitions of unemployment and labor force (ILO, 2013;Fourie and Burger, 2009:481).…”

Causality between wholesale price and consumer price indices in India

“…Furthermore, the causality test based on Toda and Yamamoto (1995) clearly showed that there prevails a bidirectional causal relationship between WPI and CPI, and that its behavior running from WPI to CPI is comparably stronger. Akçay (2011) examined the causal relationship between PPI and CPI for the five selected European countries, using seasonally adjusted monthly data from August 1995 to December 2007. The author employed Toda and Yamamoto's (1995) causality test approach to investigate causality and found a unidirectional causality running from PPI to CPI in Finland and France, bidirectional causality between two indices in Germany and no significant causality in the case of The Netherlands and Sweden.…”

Does CPI Granger-cause WPI? New extensions from frequency domain approach in Pakistan

“…The measures of general price levels such as consumer price index, wholesale price index, GDP deflator and sensitive price index are being constructed by the State Bank of Pakistan (SBP) 1 . These indices help in constructing national income and product account measures (Cecchetti et al 2009).…”