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Distinctive Characteristics of the Causality between the PPI and CPI: Evidence from Romania

Author

Listed:
  • Khalid KHAN

    (School of Finance, Qilu University of Technology and School of Economics, Ocean University of China)

  • Chi-Wei SU

    (Department of Finance, Ocean University of China)

  • Nicoleta - Claudia MOLDOVAN

    (Department of Finance, West University of Timisoara)

  • De-Ping XIONG

    (School of Finance, Yunnan University of Finance and Economics)

Abstract

This paper examines the causal relationship between the producer price index (PPI) and consumer price index (CPI) in Romania. The Granger full sample test shows unidirectional causality from PPI to CPI. The parameter stability test shows instability in the short run and the result is inappropriate for estimation due to the presence of structural changes. The Sub-sample rolling window test is used to address the time-varying, and it provides bi-directional causality at different sub-sample. The finding does not support the neoclassical profit-maximizing model, which states that PPI is not a single factor of fluctuation in CPI for Romania. It indicates the bidirectional relationship between the PPI and CPI, suggests that both these price indices play a significant role. The study implies policy-wise that PPI is a major factor in the price stability and should have been included in inflation targeting policy to curb the inflation in Romania.

Suggested Citation

  • Khalid KHAN & Chi-Wei SU & Nicoleta - Claudia MOLDOVAN & De-Ping XIONG, 2017. "Distinctive Characteristics of the Causality between the PPI and CPI: Evidence from Romania," ECONOMIC COMPUTATION AND ECONOMIC CYBERNETICS STUDIES AND RESEARCH, Faculty of Economic Cybernetics, Statistics and Informatics, vol. 51(2), pages 103-123.
    • Handle: RePEc:cys:ecocyb:v:50:y:2017:i:2:p:103-123
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    Cited by:

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    More about this item

    Keywords

    Consumer Price Index; Producer Price Index; Rolling Window; Time-varying Causality; Bootstrap.;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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