PPI and CPI: What is the relationship?
| Název práce v češtině: | PPI a CPI: Jaký je vztah? |
|---|---|
| Název v anglickém jazyce: | PPI and CPI: What is the relationship? |
| Klíčová slova: | inflace, index cen výrobců, index spotřebitelských cen, harmonizovaný index spotřebitelských cen, PPI, CPI, HICP, eurozóna, Grangerova kauzalita |
| Klíčová slova anglicky: | Inflation, Producer price index, Consumer price index, Harmonised index of consumer prices, PPI, CPI, HICP, Euro area, Granger causality |
| Akademický rok vypsání: | 2020/2021 |
| Typ práce: | bakalářská práce |
| Jazyk práce: | angličtina |
| Ústav: | Institut ekonomických studií (23-IES) |
| Vedoucí / školitel: | Mgr. Petr Polák, M.Sc., Ph.D. |
| Řešitel: | skrytý - zadáno vedoucím/školitelem |
| Datum přihlášení: | 04.05.2021 |
| Datum zadání: | 25.05.2021 |
| Datum a čas obhajoby: | 25.01.2023 09:00 |
| Místo konání obhajoby: | Opletalova - Opletalova 26, O105, Opletalova - místn. č. 105 |
| Datum odevzdání elektronické podoby: | 03.01.2023 |
| Datum proběhlé obhajoby: | 25.01.2023 |
| Oponenti: | prof. PhDr. Tomáš Havránek, Ph.D. |
| Seznam odborné literatury |
| Blomberg, S. B., & Harris, E. S. (1995). The commodity-consumer price connection: fact or fable? Economic Policy Review-Federal Reserve Bank of New York, 1(3), 21-38.
Caporale, G. M., Katsimi, M., & Pittis, N. (2002). Causality links between consumer and producer prices: some empirical evidence. Southern Economic Journal, 68(3), 703-711. Clark, T. E. (1995). Do producer prices lead consumer prices? Economic Review-Federal Reserve Bank of Kansas City, 80(3), 25-39. Colclough, W. G., & Lange, M. D. (1982). Empirical evidence of causality from consumer to wholesale prices. Journal of Econometrics, 19, 379-384. Furlong, F., & Ingenito, R. (1996). Commodity prices and inflation. Economic Review-Federal Reserve Bank of San Francisco, 27-47. Hess, G. D., & Schweitzer, M. E. (2000). Does wage inflation cause price inflation? Federal Reserve Bank of Cleveland Policy Discussion Paper. Yu, C. P. (2016). Why are there always inconsistent answers to the relation between the PPI and CPI? Re-examination using Panel Data Analysis. International Review of Accounting, Banking and Finance, 8(1), 14-31. |
| Předběžná náplň práce v anglickém jazyce |
| Research question and motivation
Inflation is one of the most important metrics characterizing the performance of the economy. It is most frequently measured by the CPI, the PPI or their modifications. These indices have some significant differences and a possible relationship among them may be of interest to monetary authorities and other policymakers. Empirical analyses regarding the relationship between the PPI and the CPI have produced conflicting results (Yu, 2016), suggesting that the relationship may be unstable. There have also been studies focusing only on particular components of the indices. Blomberg and Harris (1995) and Furlong and Ingenito (1996) studied the relationship between various commodity price indices and the CPI and found that commodity prices were a reliable leading indicator of CPI inflation in the USA in the 1970s and early 1980s but later lost their explanatory power. Even though labor costs are a factor in pricing products, wage inflation has not been found to be a predictor of consumer price inflation, in fact, there is more evidence of an opposite causal relationship (Hess & Schweitzer, 2000). Interestingly, there is a basis in economic theory for both possible directions of causality between the PPI and the CPI. A pass-through effect in the production chain, with added value provided by the retail sector with a lag to previous production, suggests causality from the PPI to the CPI (Caporale et al., 2002). However, it may be weakened by factors such as differences in construction of the indices, complexity of firms’ price-setting decisions and high volatility of the PPI (Clark, 1995). On the other hand, consumer demand for final goods and services may influence the opportunity cost of resources used during production, suggesting causality from the CPI to the PPI (Colclough & Lange, 1982). Contribution Existing research is inconclusive, suggesting that the form of the relationship may be susceptible to change in response to differences in regional characteristics of the economy or that the relationship may be weak. Existing studies have been most frequently conducted with data from a single country, often the USA, or a small group of countries. The contribution of my thesis is going to be in usage of up-to-date data from Eurostat regarding selected EU member states. I will focus on the Czech Republic and on countries of the euro area. The data is also going to reflect the impact of the Covid-19 pandemic on inflation rates and the broader economy. Methodology Time series data regarding inflation in the Czech Republic and in the euro area will be obtained from Eurostat. The data will be checked for stationarity and if the time series is found to be non-stationary, the data may then be modified in order to better suit some of the methods of analysis of the data. The methods used in processing the data will be primarily the Granger causality test and vector autoregression models. I will construct several models with the dependent variable being either the CPI or the PPI and with the independent variables being lagged values of the indices. The length of the lag may vary among the models. Explanatory power of a lagged index in a particular model will then be investigated by the Granger causality test. I will also construct some unrestricted multivariate models containing other independent variables, which may be a factor in predicting inflation. For example, Clark (1995) used real GDP growth, the 3-month US Treasury bill rate and growth in the average hourly earnings of manufacturing workers. Outline Abstract Introduction Literature review Methodology and data description Hypotheses testing and results Limitations Conclusion |