PPI and CPI: What is the relationship?
|Author:||Bc. David Červený|
|Year:||2023 - winter|
|Leaders:|| Mgr. Petr Polák MSc. Ph.D.
|Work type:|| Bachelors
|Awards and prizes:|
|Abstract:||This bachelor thesis examines the relationship between the PPI and the CPI in the Czech
Republic and the euro area. The primary method used in this thesis is the Granger causality test.
Granger causality between the price indices is tested for in a bivariate model and also
conditional on other variables describing the development of real GDP, a given monetary
aggregate and wages. The most apparent conclusion that can be drawn from the empirical
results indicates that the PPI Granger-causes the CPI in the Czech Republic and that there is no
Granger causality going from the CPI to the PPI in the euro area. These results are consistent
with conventional economic theory, which suggests a pass-through effect in the production
chain going from producer prices to consumer prices.