An empirical investigation of causality between producers' price and consumers' price indices in Australia in frequency domain
AbstractThe paper examines Granger-causality between the producers' and the consumers' price using Australian data within the frequency domain framework. For long run relation, the Johansen and Juselius (1990) maximum likelihood approach to cointegration was utilized. The test is also supplemented by the Breitung and Candelon (2006) and Lemmens et al. (2008) method. The quarterly data for the study covers 1969q3 to 2010q4. The findings suggest that consumers' price Granger-causes producers' price at an intermediate level of frequencies reflecting medium-run cycles, whereas producers' price does not Granger-cause consumers' price at any level of frequencies. Our study shows that consumers' price is a leading indicator of producers' price. Given that producers' price is used in making various macroeconomic indicators in real terms, the findings should help the Australian policymakers to gain control over the factors that affect consumers' price. The major contribution of the paper is to demonstrate unidirectional causality from consumers' price to the producers' price. Specifically, results show that consumers' price in Australian may have a significant predictive content in how the producers' price evolve. Furthermore, the application of the Breitung and Candelon (2006) and Lemmens et al. (2008) methodology in testing the Granger-causality in frequency domain is also relatively new.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 29 (2012)
Issue (Month): 5 ()
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Web page: http://www.elsevier.com/locate/inca/30411
Producers' price index; Consumers' price index; Granger-causality in the frequency domain; Australia;
Find related papers by 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
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
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