Research On Dependence Between CPI And PPI Based On Copula Function

The fluctuation of price system can provide strong guidance for the economic subject to make scientific and effective economic decisions. It also has a crucial role in the effective resource allocation of economic subjects. The consumer price index (CPI) and the producer price index (PPI) are two important indicators of the Price index system. CPI reflects the price level of the consumption of resident, while PPI reflect the price level of production of enterprise.Based on National CPI, Urban CPI, Rural CPI and PPI from Jan.2007 to Dec.2014, this paper use Copula Function to analyzes dependence between CPI and PPI. It consider qualitative and quantitative analysis and it also consider the difference of the country, the urban and the rural areas.The results show high correlation between the CPI and PPI, and it show that the upper tail correlation is obvious better than the lower tail correlation. The correlation of RCPI and PPI is weaker than the others because of the higher self-sufficiency.In economics, we can find that there is not only a strong correlation of CPI and PPI, but also present a two-way transmission relationship. Through the empirical analysis, we found that the tail correlation shows asymmetry and the reason of the phenomenon. First, the government releases policies of price intervention, in order to curb the development of inflation. Second, the market is facing with excess capacity. As a consequence, companies lack pricing power in buyer’s market. Third, there is some different between PPI and CPI. this paper reveals the complex internal relations between the CPI and PPI and provide some guidance to our country.