Is there any relationship between producer price index and consumer price index in the Czech Republic?

Khalid Khan, Chi-Wei Su, Ran Tao and Chien-Chi Chu

Economic Research-Ekonomska Istraživanja, 2018, vol. 31, issue 1, 1788-1806

Abstract: This article tests the expenditure-switching model in the Czech Republic to inspect the causal link between the Producer Price Index (P.P.I.) and Consumer Price Index (C.P.I.). The results of the co-movement between the P.P.I. and C.P.I. in the period indicate a positive relationship across the chosen period. We notice that in the frequency domain, the two variables have a relationship in higher spectrums (short-term). The results also show that co-movements exist during structural reforms and financial crises, which in turn supports the expenditure-switching model. The C.P.I. and P.P.I. are sensitive to variations in exchange rates, which pass through prices at the domestic level. Exchange rate shocks lead to inflationary pressure; therefore, long-term oriented intervention policies of the central banks will be more efficient. This article provides substantial information to exporters about price adjustments to exchange rate fluctuation.

Date: 2018
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DOI: 10.1080/1331677X.2018.1498007

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