IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

An empirical investigation of causality between producers' price and consumers' price indices in Australia in frequency domain

  • Tiwari, Aviral Kumar

The 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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0264999312001290
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 29 (2012)
Issue (Month): 5 ()
Pages: 1571-1578

as
in new window

Handle: RePEc:eee:ecmode:v:29:y:2012:i:5:p:1571-1578
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Assenmacher-Wesche, Katrin & Gerlach, Stefan, 2006. "Money at Low Frequencies," CEPR Discussion Papers 5868, C.E.P.R. Discussion Papers.
  2. Dawson, P.J., 2006. "The export-income relationship and trade liberalisation in Bangladesh," Journal of Policy Modeling, Elsevier, vol. 28(8), pages 889-896, November.
  3. Johansen, Soren, 1992. "Determination of Cointegration Rank in the Presence of a Linear Trend," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 383-97, August.
  4. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  5. Aviral Kumar Tiwari, 2012. "Tax Burden and GDP: Evidence from Frequency Doman Approach for the USA," Economics Bulletin, AccessEcon, vol. 32(1), pages 147-159.
  6. Assenmacher-Wesche, Katrin & Gerlach, Stefan, 2008. "Interpreting euro area inflation at high and low frequencies," European Economic Review, Elsevier, vol. 52(6), pages 964-986, August.
  7. Breitung, Jorg & Candelon, Bertrand, 2006. "Testing for short- and long-run causality: A frequency-domain approach," Journal of Econometrics, Elsevier, vol. 132(2), pages 363-378, June.
  8. Katrin Assenmacher-Wesche & Stefan Gerlach, 2006. "Money Growth, Output Gaps and Inflation at Low and High Frequency: Spectral Estimates for Switzerland," Working Papers 2006-05, Swiss National Bank.
  9. Colclough, William G. & Lange, Mark D., 1982. "Empirical evidence of causality from consumer to wholesale prices," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 379-384, August.
  10. Assenmacher-Wesche, Katrin & Gerlach, Stefan & Sekine, Toshitaka, 2007. "Monetary factors and inflation in Japan," IMFS Working Paper Series 13, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.
  11. Guglielmo Maria Caporale & Margarita Katsimi & Nikitas Pittis, 2002. "Causality Links between Consumer and Producer Prices: Some Empirical Evidence," Southern Economic Journal, Southern Economic Association, vol. 68(3), pages 703-711, January.
  12. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
  13. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, March.
  14. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  15. Clive, W.J. & Lin, Jin-Lung, 1995. "Causality in the Long Run," Econometric Theory, Cambridge University Press, vol. 11(03), pages 530-536, June.
  16. G. William Schwert, 1988. "Tests For Unit Roots: A Monte Carlo Investigation," NBER Technical Working Papers 0073, National Bureau of Economic Research, Inc.
  17. Todd E. Clark, 1995. "Do producer prices lead consumer prices?," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 25-39.
  18. Muhammad Shahbaz & Abu N. M. Wahid & Adnan Haider, 2010. "Empirical Psychology Between Wholesale Price And Consumer Price Indices: The Case Of Pakistan," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 55(03), pages 537-551.
  19. 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.
  20. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  21. Marc Gronwald, 2009. "Reconsidering the macroeconomics of the oil price in Germany: testing for causality in the frequency domain," Empirical Economics, Springer, vol. 36(2), pages 441-453, May.
  22. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  23. Jones, J D, 1986. "Consumer Prices, Wholesale Prices, and Causality (More Empirical Evidence for the U.S., 1947-1983.)," Empirical Economics, Springer, vol. 11(1), pages 41-55.
  24. Lemmens, Aurélie & Croux, Christophe & Dekimpe, Marnik G., 2008. "Measuring and testing Granger causality over the spectrum: An application to European production expectation surveys," International Journal of Forecasting, Elsevier, vol. 24(3), pages 414-431.
  25. Dion, Richard, 1999. "Indicator Models of Core Inflation for Canada," Working Papers 99-13, Bank of Canada.
  26. Shiok Ye Lim & Ricky Chee-Jiun Chia & Chong Mun Ho, 2010. "Long-run Validity of Export-Led Growth: An Empirical Reinvestigation from Linear and Nonlinear Cointegration Test," Economics Bulletin, AccessEcon, vol. 30(2), pages 1182-1190.
  27. José Julián Sidaoui & Carlos Capistrán & Daniel Chiquiar & Manuel Ramos Francia, 2009. "A Note on the Predictive Content of PPI over CPI Inflation: The Case of Mexico," Working Papers 2009-14, Banco de México.
  28. Cheung, Yin-Wong & Lai, Kon S, 1993. "Finite-Sample Sizes of Johansen's Likelihood Ration Tests for Conintegration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(3), pages 313-28, August.
  29. Love, Jim & Chandra, Ramesh, 2005. "Testing export-led growth in Bangladesh in a multivarate VAR framework," Journal of Asian Economics, Elsevier, vol. 15(6), pages 1155-1168, January.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:29:y:2012:i:5:p:1571-1578. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.