Empirical Study On The Mutual Conduction Mechanism Of The Price Index PPI And CPI

Price Index mainly reflects if the Chinese economy is healthy or not.Especially,the consumer price index(CPI)and producer price index(PPI)are the most important indicators of a preliminary judgment for the economic performance and price level.It is an important basis for the formulation and implementation of economic policy and national accounts.Under normal circumstances,we think there is inflation when the growth rate of the CPI is more than three percent,and when it is more than five percent the serious inflation happened.Conversely,deflation may occur when the CPI appears zero growth and continued.If the changes in the PPI and CPI are broadly consistent or not has become an important symbol reflecting the soundness of the economy.A clear grasp of the price transmission process guides the formulation of effective economic policies.Existing relevant literature generally study the overall conduction trends and correlation between CPI and PPI,so the viewing angle is relatively simple.This paper uses VAR,VEC model,study long-term and short-term conduction relationships,effect and time lag between the CPI and PPI.Further,from a plurality perspective,the paper delves into the transmission mechanism of PPI on CPI.First,the theory viewing angle including the meaning,construction,statistical methods and caliber of PPI and CPI turns out the two index have different and cross.Second,viewing from the historical volatility of the CPI and PPI,exploring the relationship between them initially.On the one hand,the second chapter found that the relationship between PPI and CPI is not a simple linear regression relationship through charts and correlation analysis,PPI's peaks and troughs always precedes to the emergence of CPI.On the other hand,the comparison with the monthly data and annual data proved that the monthly data reflect the two index's relationship more accurately.Therefore,using monthly data can get a more accurate scientific conclusions.Again,using a variety of econometric methods to explore the conduction effect and conduction delay of PPI and CPI.Selecting the monthly data and doing seasonally adjusted can react the fluctuations between PPI and CPI realistically.The co-integration test on the basis of unit root tests proves that there's a long-term equilibrium relationship between them.Granger test proves the existence of a causalrelationship between them.VEC model reveals the short-term changes in PPI and CPI and its adjustment speed of deviation.And the impulse response analysis on the basis of VAR models reveals conduction time lag between the CPI and PPI forward and reverse are 15 months and 10 months respectively.Finally,viewing from the production chain transitive relation to explore the transmission mechanism PPI on CPI deeply.Exploring the similarities and differences of transmission mechanism between the PPI on rural and urban CPI : Both the impulse response trend graph are basically the same,showing increased first and then decreased,but the magnitude of fluctuations and sustained response time is different.The PPI's lag effect to the rural and urban CPI were 14 months and 16 months.Then,explore the production and subsistence PPI's conducting contribution to CPI by comparing: by the means of variance decomposition,we can see that the production PPI contribute to the CPI by 15%,and the subsistence PPI contribute to the CPI by25%.Further,refining the PPI to seven sub-index,exploring its impact on the CPI:food CPI's conductivity contribution on PPI is the maximum,up to 20%.And the next are the raw PPI,the durable consumer goods PPI,the processing industry PPI,the contribution rates are 10%,8% and 7%.In summary,expecting to master the conduction rule of the PPI on CPI and discover conduction problems through deeply research.Finally,based on the above conclusions,making the economic policies of curbing inflation and promoting corporate production capacity more targeted,so that our economy running smoothly and healthy.