Linking consumer prices to wholesale prices: Error correction models for the case of Greece
The purpose of this paper is to investigate and measure the proportion of changes in wholesale prices transferred to consumer prices in the economy of Greece. The data used in the investigation are monthly, covering the period from 1973:1 to 2000:11, and refer to consumer price indexes and finished products wholesale price indexes. Cointegration methods are used in order to investigate the cost transfer from wholesale prices to consumer prices, or in other words to test the existence or not of a long-term equilibrium relationship between the two prices. The paper concludes that long-term relationships exist between the two prices and thus, error correction models (ECM) are developed and estimated using the Seemingly Unrelated Regression Estimation (SURE) method. Multipliers, estimated using dynamic simulation of the ECM group of equations, indicate the sensitivity of consumer prices to changes in wholesale prices.
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