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Do producer prices help predict consumer prices?

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  • Todd E. Clark

Abstract

This paper reexamines whether producer prices help predict consumer prices, focusing on model stability and the forecasting performance of time-varying parameter models. In bivariate models, producer price inflation consistently Granger-causes consumer price inflation in-sample but fails to improve out-of-sample forecasts of consumer price inflation. The tests of Nyblom (1989), Andrews (1993), and Andrews and Ploberger (1994) indicate instability pervades the bivariate models. Allowing for a simple form of instability, however, fails to improve the predictive power of producer prices. Even in models using the stochastic coefficients formulation developed by Cooley and Prescott (1973(a), 1973(b), 1976), among others, producer prices do not help to forecast consumer prices.

Suggested Citation

  • Todd E. Clark, 1997. "Do producer prices help predict consumer prices?," Research Working Paper 97-09, Federal Reserve Bank of Kansas City.
    • Handle: RePEc:fip:fedkrw:97-09
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    Cited by:

    1. Chen, Pu & Chihying, Hsiao, 2007. "Learning Causal Relations in Multivariate Time Series Data," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 1, pages 1-43.
    2. Jonsson, Magnus & Palmqvist, Stefan, 2004. "Do Higher Wages Cause Inflation?," Working Paper Series 159, Sveriges Riksbank (Central Bank of Sweden).
    3. Carbajal-De-Nova, Carolina, 2021. "Wages and inflation in Mexican manufacturing. A two-period comparison: 1994-2003 and 2007-2016," MPRA Paper 109555, University Library of Munich, Germany.
    4. Gregory D. Hess & Mark E. Schweitzer, 2000. "Does wage inflation cause price inflation?," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Apr.

    More about this item

    Keywords

    Consumer price indexes; Prices;

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