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A Note on the Predictive Content of PPI over CPI Inflation: The Case of Mexico

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  • José Julián Sidaoui
  • Carlos Capistrán
  • Daniel Chiquiar
  • Manuel Ramos Francia

Abstract

This note studies the causal relationship that may exist between the producer price index (PPI) and the consumer price index (CPI). In contrast with previous international studies, the results suggest that, in the case of Mexico, information on the PPI seems to be useful to improve forecasts of CPI inflation. In particular, CPI inflation responds significantly to disequilibrium errors with respect to the long-run relationship between consumer and producer prices. These results are based on in-sample and out-of-sample tests of Granger causality, in the context of an error correction model.

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File URL: http://www.banxico.org.mx/publicaciones-y-discursos/publicaciones/documentos-de-investigacion/banxico/%7BED63A945-07C9-A4E6-35B4-28475D92D651%7D.pdf
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Bibliographic Info

Paper provided by Banco de México in its series Working Papers with number 2009-14.

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Date of creation: Nov 2009
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Handle: RePEc:bdm:wpaper:2009-14

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Web page: http://www.banxico.org.mx
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Keywords: Cointegration; forecast evaluation; Granger causality; vector error correction.;

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  4. Raffaella Giacomini & Halbert White, 2003. "Tests of conditional predictive ability," Boston College Working Papers in Economics 572, Boston College Department of Economics.
  5. Todd E. Clark, 1995. "Do producer prices lead consumer prices?," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 25-39.
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  7. Carlos Capistrán & Christian Constandse & Manuel Ramos Francia, 2009. "Using Seasonal Models to Forecast Short-Run Inflation in Mexico," Working Papers 2009-05, Banco de México.
  8. Carlos Capistrán & Manuel Ramos Francia, 2006. "Inflation Dynamics in Latin America," Working Papers 2006-11, Banco de México.
  9. Dion, Richard, 1999. "Indicator Models of Core Inflation for Canada," Working Papers 99-13, Bank of Canada.
  10. Daniel Chiquiar & Antonio Noriega & Manuel Ramos-Francia, 2010. "A time-series approach to test a change in inflation persistence: the Mexican experience," Applied Economics, Taylor & Francis Journals, vol. 42(24), pages 3067-3075.
  11. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-44, January.
  12. Antonio E. Noriega & Manuel Ramos Francia, 2009. "On the dynamics of inflation persistence around the world," Working Papers 2009-02, Banco de México.
  13. S. Brock Blomberg & Ethan S. Harris, 1995. "The commodity-consumer price connection: fact or fable?," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 21-38.
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Cited by:
  1. Tiwari, Aviral & Shahbaz, Muhammad, 2010. "Modelling the Relationship between Whole Sale Price and Consumer Price Indices: Cointegration and Causality Analysis for India," MPRA Paper 27333, University Library of Munich, Germany.
  2. Tiwari, Aviral Kumar, 2012. "An empirical investigation of causality between producers' price and consumers' price indices in Australia in frequency domain," Economic Modelling, Elsevier, vol. 29(5), pages 1571-1578.
  3. Tiwari, Aviral Kumar & Suresh K.G., & Arouri, Mohamed & Teulon, Frédéric, 2014. "Causality between consumer price and producer price: Evidence from Mexico," Economic Modelling, Elsevier, vol. 36(C), pages 432-440.
  4. Shahbaz, Muhammad & Tiwari, Aviral Kumar & Tahir, Mohammad Iqbal, 2012. "Does CPI Granger-cause WPI? New extensions from frequency domain approach in Pakistan," Economic Modelling, Elsevier, vol. 29(5), pages 1592-1597.

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