Testing the asymmetric and lead-lag relationship between CPI and PPI: an application of the ARDL and NARDL approaches

Mohd, Rafede and Masih, Mansur (2018): Testing the asymmetric and lead-lag relationship between CPI and PPI: an application of the ARDL and NARDL approaches.

Abstract

The purpose of this study is to investigate the asymmetric relationship and lead-lag position between CPI and PPI by comparing with the United State (US), European Union (EU), Singapore and Malaysia. This study supported by previous literature, analyses the time series data using techniques known as ARDL and NARDL. Based on this study of four (4) countries, it is noted that the US Consumer Price Index (UCP) is the most exogenous variable. Accordingly, a focus on US Producer Price Index (UPI) as endogenous has resulted in negative shocks more than positive shocks that could relate to asymmetric price transmission (APT). Thus, when UCP leads UPI, market power in input market responds more rapidly to shocks. Besides, it is also evidenced by the market that technology could hold down inflation and stimulate the GDP by putting pressure on wages, increasing productivity, and encouraging competition. Therefore, mixed approaches can be executed by the policymakers in managing the inflation and PPI to achieve the very best level of a country’s economy

• Item Type: MPRA Paper
• Language: English
• Keywords: Consumer Price index, Producer Price Index, ARDL, NARDL, asymmetric
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

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