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Jednoduchý model interakce CPI a PPI: aplikace na měsíční data zemí EU
[A Simple Model of Interaction Between CPI and PPI: Application to Monthly Data of EU Countries]

Author

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  • Petr Kadeřábek

Abstract

We consider two markets in our model: wholesale, where producers' supply interacts with distributors' demand, and retail with distributors' supply and consumers' demand. The wholesale market determines the producer price index (PPI), production and indirectly also employment. In the retail market the consumer price index (CPI) is formed. We specify a simple dynamic model with two state variables: CPI and PPI. Real variables - production and employment - are fully determined by CPI and PPI. A supply shock shows itself in instant PPI adjustment, a demand shock in CPI. Thus, in the CPI inflation equation the supply shocks are fully determined endogenously by the wholesale - retail markets relationship and for practical use we should add exogenous demand shock to the equation. On the other hand, it would be suitable to add exogenous supply shocks to the PPI inflation, production and employment equations. In the second part we implement the model on monthly data of EU countries. It will be necessary modify the model specification so that we coped with the problems of seasonality and not exactly the same structure of baskets, used for CPI and PPI computations. We estimate each equation of the model both for each single country separately and for the whole panel.

Suggested Citation

  • Petr Kadeřábek, 2007. "Jednoduchý model interakce CPI a PPI: aplikace na měsíční data zemí EU [A Simple Model of Interaction Between CPI and PPI: Application to Monthly Data of EU Countries]," Politická ekonomie, Prague University of Economics and Business, vol. 2007(2), pages 226-244.
    • Handle: RePEc:prg:jnlpol:v:2007:y:2007:i:2:id:598:p:226-244
    DOI: 10.18267/j.polek.598
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    References listed on IDEAS

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    More about this item

    Keywords

    inflation; employment; production; panel data; Producer and consumer prices; Static and regressive expectations;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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