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An Empirical Analysis of the Relationship between WPI and PMI-Manufacturing Price Indices in India

  • Khundrakpam, Jeevan Kumar
  • George, Asish Thomas

Manufacturing Purchasing Managers Index (PMI) has been increasingly used by various central banks for assessing the direction and strength of economic activity. One of the sub-indices or component level information provided by PMI is that of industrial input and output prices trends as surveyed by firms’ purchasing managers. In this context, the paper tries to examine whether these PMI manufacturer’s price diffusion indices serve as a useful indicator for understanding changes in WPI in India. The analysis was carried out using both OLS estimates and ARDL approach to cointegration for the period April 2005 to October 2012. It is found that both the PMI price indices are good indicators and have significant predictive power of the changes in WPI–All commodities and WPI–Non-food manufactured products.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 50929.

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Date of creation: Oct 2012
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Publication status: Published in RBI WORKING PAPER SERIES W P S (DEPR): 06.2013(2013): pp. 1-17
Handle: RePEc:pra:mprapa:50929
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  1. Evan F. Koenig, 2002. "Using the Purchasing Managers' Index to assess the economy's strength and the likely direction of monetary policy," Economic and Financial Policy Review, Federal Reserve Bank of Dallas.
  2. Kajal Lahiri & George Monokroussos, 2011. "Nowcasting US GDP: The role of ISM Business Surveys," Discussion Papers 11-01, University at Albany, SUNY, Department of Economics.
  3. Yoichi Tsuchiya, 2012. "Is the Purchasing Managers' Index useful for assessing the economy's strength? A directional analysis," Economics Bulletin, AccessEcon, vol. 32(2), pages 1302-1311.
  4. Anindya BANERJEE & Massimiliano MARCELLINO, 2002. "Are There Any Reliable Leading Indicators for US Inflation and GDP Growth?," Economics Working Papers ECO2002/21, European University Institute.
  5. Jonathan H. Wright, 2003. "Forecasting U.S. inflation by Bayesian Model Averaging," International Finance Discussion Papers 780, Board of Governors of the Federal Reserve System (U.S.).
  6. Khundrakpam, Jeevan K. & Ranjan, Rajiv, 2010. "Saving-Investment Nexus and International Capital Mobility in India: Revisiting Feldstein-Horioka Hypothesis," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 45(1), pages 49-66.
  7. Kumar Khundrakpam, Jeevan & Pattanaik, Sitikantha, 2010. "Fiscal Stimulus and Potential Inflationary Risks: An Empirical Assessment of Fiscal Deficit and Inflation Relationship in India," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 25, pages 703-721.
  8. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
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