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Causality Links between Consumer and Producer Prices: Some Empirical Evidence
Author(s) -
Caporale Guglielmo Maria,
Katsimi Margarita,
Pittis Nikitas
Publication year - 2002
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/j.2325-8012.2002.tb00448.x
Subject(s) - causality (physics) , economics , econometrics , inference , monetary transmission mechanism , transmission (telecommunications) , empirical evidence , mechanism (biology) , causal inference , monetary policy , macroeconomics , monetary economics , computer science , telecommunications , credit channel , inflation targeting , philosophy , physics , epistemology , quantum mechanics , artificial intelligence
This paper reexamines the relationship between consumer and producer prices in the G7 countries (United States, Canada, Germany, France, Italy, United Kingdom, and Japan), and it improves on the existing literature in two ways. First, it takes into account causality links arising from the transmission mechanism of monetary policy, which are generally overlooked. Second, it employs the causality testing method for unstable systems recently introduced by Toda and Yamamato (1995), which results in standard asymptotics, thereby obtaining valid statistical inference. The empirical results are consistent with the conventional wisdom according to which there is unidirectional causality running from producer to consumer prices, bidirectional causality (or even no significant links) only being found when the causality links reflecting the monetary transmission mechanism are ignored.