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IS THERE ANY RELATIONSHIP BETWEEN PRODUCER PRICE INDEX AND CONSUMER PRICE INDEX IN SLOVAKIA? A BOOTSTRAP ROLLING APPROACH

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Su C.-W., Khan K., Lobont O.-R., Sung H.-C.
Ekonomický časopis (Journal of Economics)
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2016
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vol. 64
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issue 7
611 – 628
EN
This study examines the causal link between the producer price index (PPI) and the consumer price index (CPI) in Slovakia. We use the bootstrap Granger full sample causality, and the sub-sample rolling window approach and results indicate the unidirectional causality running from the PPI to the CPI. By taking the structural changes into consideration, the full sample causal relationship is unstable and such results are misappropriated. Further, we use a time-varying rolling window approach to revisit the dynamic causal relationship between the PPI and the CPI. It indicates the existence of bi-directional causality between the two series in several sub-samples and the result supports the neoclassical profit-maximizing model, which shows that PPI plays a key role in the CPI in the Slovakia. We find that the PPI has a more contributing role to the CPI so the central bank can minimise the inflation by taking certain predictive measures to keep the input prices under control. The central bank should consider the reliable response of the prices at an aggregated and disaggregated level of production in the formulation of inflation targeting.
2

PRODUCER PRICE INDEX AND CONSUMER PRICE INDEX: CAUSALITY IN CENTRAL AND EASTERN EUROPEAN COUNTRIES

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Khan K., Su C.-W., Tao R., Lobonț O.-R.
Ekonomický časopis (Journal of Economics)
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2018
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vol. 66
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issue 4
367 – 395
EN
This article uses the bootstrap panel Granger causality to analyse the link between the Producer Price Index (PPI) and Consumer Price Index (CPI) in ten Central and Eastern European (CEE) countries. The result of cross-sectional dependency and slope homogeneity shows that PPI and CPI vary in different countries. However, the result indicates that PPI influences CPI in the sense of Granger causality in five CEE countries; namely, Latvia, Lithuania, Romania, Slovakia and Slovenia. The findings support the moderate inflation model in the significant countries, which explain that PPI is a primary contributing factor of CPI. On the other hand, CPI has a significant impact on the PPI only in Hungary. The results are useful for policy makers of these countries to formulate inflation targeting policies with greater attention towards the PPI.
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