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Title: An investigation into the dynamic relationship between CPI and PPI: Evidence from the UK, France and Germany
Authors: Dr. WOO Kai Yin 
Dr. LEE Shu Kam 
Ng, Cho-yiu, Joe 
Issue Date: 2019
Source: The Singapore Economic Review, 2019, vol. 64(5), pp. 1081-1100.
Journal: The Singapore Economic Review 
Abstract: This paper examines the dynamic relationship between the consumer price index (CPI) and the producer price index (PPI) in the UK, France and Germany from 1997 to 2013. We employ the momentum-threshold autoregressive (MTAR) cointegration model for empirical analysis. The results show that the CPI and the PPI are cointegrated with bi-directional long-run Granger causality between CPI and PPI, signifying the existence of both demand-pull and the cost-push nature of inflation. The estimates of threshold vector error correction models (TVECMs) indicate asymmetric adjustments to equilibrium, where upward adjustments are statistically significant but downward adjustments are sluggish and insignificant. Moreover, we generate the unconditional half-life estimates as a measure of persistence, which reveal robust evidence of complex non-linearities in the adjustment process. Our overall results provide valuable information for policymakers to formulate inflation-control policies and optimal policy horizons under a non-linear framework.
Type: Peer Reviewed Journal Article
ISSN: 0217-5908
DOI: 10.1142/S0217590818500261
Appears in Collections:Economics and Finance - Publication

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