The relationship between different price indexes: A set of evidence from inflation targeting countries

Article type: Research Article

Authors: Akdi, Yilmaz^a | Berument, Hakan^{b; *} | Cilasun, Seyit Mümin^c | Olgun, Hasan^d

Affiliations: [a] Department of Statistics, Faculty of Science, Ankara University 06100 Tandogan Ankara, Turkey | [b] Department of Economics, Bilkent University, 06800 Bilkent Ankara, Turkey | [c] Department of Economics, Atilim University, 06836 Incek Ankara, Turkey | [d] Department of Economics, Baskent University, 06530 Ankara, Turkey

Correspondence: [*] The corresponding author. Tel.: +90 312 290 2342; Fax: +90 312 266 5140; E-mail: [email protected]; Web: http://www.bilkent.edu.tr/~berument.

Abstract: The possible long-run relationships between the Consumer Price Index and the Wholesale Price Index are analyzed for three inflation targeting countries – Canada, Sweden and the UK – using three different statistical techniques. The Engle-Granger test finds cointegration only for Sweden. The Johansen's test and the model-free and seasonality robust periodogram based test conclusively show that the two price indexes are not cointegrated in the three countries included in the sample. Hence, the values of these indexes may consistently diverge over time. However, the two price indexes move together in the short run. These findings have some implications for the success of inflation targeting monetary policies.

Keywords: Cointegration, periodogram, price indices

DOI: 10.3233/SJU-2006-232-303

Journal: Statistical Journal of the United Nations Economic Commission for Europe, vol. 23, no. 2-3, pp. 119-125, 2006