An Empirical Analysis Of Conduction Effect Among Price Indexes

In the marketing economy, resource allocation is mainly resulted from the procedure of price changes, so price is the core indicators of economic operation, changes in the price level has become an important macroeconomic phenomenon. In general, price index can be used to reflect the overall degree of price level in a certain industry. Through the analysis of different price indices, we can grasp the reason and tendency of the price changes, not only enhance understanding about the features and regular rules of price transmission, but also provide basis suggestion for policies which are indicated to improve macroeconomic regulation, restrain the inflation or contraction, and the achievement of price stability.This paper discusses the price transmission mechanism between the upstream and downstream of industry chain, introduces the content and relationship of several central price indices, and gives a description about some possible transmission paths. Concerning the difference between the market of production and consumption, this paper analyzes the relationships among ex-factory price index of production, ex-factory price index of consumption, and the CPI index. Co-integration, Granger causality theory, pulse affection and variance decomposition are employed to analyse the price indexes. Results show that there exists long-run equilibrium between price indices from upstream and downstream chain, but the conduction presents limited, several conduction paths are statistically insignificant.The variability of price conduction is also examined using the regime shift of co-integration in the empirical analysis, and we found an obvious variable structure point. State space model of the variable parameter is chosen to investigate the underground mutual affection between indices, result states that the intensity of price conduction is time-varying. According to the empirical analysis, policy recommendations are given based on the different characters between the market of production and consumption.