Quantifying the risk of price fluctuations based on weighted Granger causality networks of consumer price indices: evide
- PDF / 2,315,185 Bytes
- 24 Pages / 439.37 x 666.142 pts Page_size
- 47 Downloads / 203 Views
Quantifying the risk of price fluctuations based on weighted Granger causality networks of consumer price indices: evidence from G7 countries Qingru Sun1,2 · Xiangyun Gao1,2 Yang Li1,2
· Ze Wang1,2 · Siyao Liu1,2 · Sui Guo1,2 ·
Received: 11 February 2019 / Accepted: 12 November 2019 © Springer-Verlag GmbH Germany, part of Springer Nature 2019
Abstract The consumer price index (CPI) is the weighted average of a basket of subcategories (CPI classes) and is the most widely adopted indicator in analyzing the risk of inflation or deflation. However, CPI classes contain more risk information. The CPI classes and the transmission of price fluctuations among them form a price index system. By using the CPI classes of the G7 countries, we explored the evolution of the fluctuation–transmission relationships among CPI classes and constructed weighted Granger causality networks (WGCNs) for each country. We measured the price fluctuation risk of the price index system in the G7 countries by using system risk entropy and revealed the structure of the systems from four perspectives: out-degree, clustering coefficient, correlation degree between CPI classes and the survival ratio of the Granger causality. We found the following trends. (1) The system risk entropy changed over time. After the 2008 financial crisis, the price fluctuation risk in the price index system increased. (2) The identified CPI classes with large out-degrees are vital in monitoring the fluctuations of commodities prices. (3) The stability of the Granger causality among CPI classes decreased as the time span increased, and the structure of most WGCNs was completely different after 2 years. Keywords Consumer price index · Granger causality · System risk entropy · Complex network
Electronic supplementary material The online version of this article (https://doi.org/10.1007/s11403019-00273-2) contains supplementary material, which is available to authorized users.
B
Xiangyun Gao [email protected]
1
School of Economics and Management, China University of Geosciences, Beijing 100083, China
2
Key Laboratory of Carrying Capacity Assessment for Resource and Environment, Ministry of Natural Resources, Beijing 100083, China
123
Q. Sun et al.
JEL Classification C32 · D85
1 Introduction The consumer price index (CPI) plays an essential role in macroeconomic research, as it quantifies the aggregate price level in an economy and measures the overall cost of living. Therefore, governments closely monitor CPI. CPI is the weighted average of a market basket of subcategory goods and services. Sarantitis et al. (2018) defined the price indices of these subcategories as CPI classes. The CPI classes reveal rich price information. Fluctuations in CPI may be relatively smooth, but the volatility of some CPI classes can be significant (Sun et al. 2018b). Because of the income and substitution effects and the supply–demand relationships between commodities, there are sophisticated fluctuation–transmission relationships among CPI classes (Sun et al. 2018a) that constitut
Data Loading...
