Multiscale Interdependence Between Consumer and Producer Prices in Emerging Eastern European Countries

This paper investigates multiscale causal relations between consumer and producer prices in eight emerging Eastern European countries. We use wavelet coherence to measure the multiscale nexus between inflation types, and wavelet-based Bayesian quantile regression (BQR) to inspect the spillover effect. Wavelet coherence plots indicate low coherence in the short time horizon (up to two months) and higher coherence in the longer time horizons, particularly from four mounts onwards. Areas of very high coherence are found around the Global Financial Crisis and the COVID-19 pandemic. Bidirectional spillover effect exists in all the countries except Poland and Hungary. In the Czech Republic, Slovakia, Estonia and Slovenia, producer prices have the upper hand over consumer prices, and this effect is stronger in the longer time horizons, which is in line with the wavelet coherence results. Only in the case of Lithuania, we find that consumer prices have a stronger effect on producer prices than vice versa, and this happens in the short term. In the case of Latvia, the BQR results are inconclusive because both inflation types have a precedence, but in different time horizons.