Authors

• Mohamad Hasan Fetros ¹
• Mehdí Torkamani ²

¹ Associat Professor,University of Bu Ali Sina Hamedan

² MA in Economics

Abstract

This paper studies the price change transmission mechanism from producer price index to consumer price index using Vector Autoregressive (VAR) model.  We use the monthly data on the PPI, WPI, and CPI for the period 1990:4 to 2005:3 The results from impulse response function suggest that a positive shock in PPI makes the WPI and CPI to rise immediately and it lasts for more than 12 months. Moreover, a positive shock in WPI makes CPI to rise but it becomes statistically insignificant in less than 6 months. Moreover, the variance decomposition of CPI suggests that PPI is the most influential factor in CPI changes, The variance decomposition of WPI also suggests that PPI is a significant factor in WPI changes.
 

Keywords

• Producer price index
• wholesale price index
• consumer price index
• vector autoregressive method