IDEAS home Printed from https://ideas.repec.org/a/unt/japsdj/v25y2018i2p77-97.html
   My bibliography  Save this article

Price co-movements, commonalities and responsiveness to monetary policy: empirical analysis under Indian conditions

Author

Listed:
  • Anuradha Patnaik

    (Associate Professor, Mumbai School of Economics and Public Policy, University of Mumbai, India)

Abstract

This study aims to empirically establish the co-movement of price indices of seemingly unrelated commodities, suggesting that the Central Bank should not decouple fluctuation in the national price index into volatile and core components. An attempt is also made to understand whether monetary policy can influence the factors responsible for price fluctuations in the states of India. The study becomes especially relevant under Indian conditions where flexible inflation targeting has been adopted by the Reserve Bank of India (Central Bank of India) and achieving the targeted inflation is a primary concern of the Indian government. The results of the empirical analysis clearly reveal that unrelated price indices co-move in India, and that monetary policy initiatives fail to influence the common factors of the states of India. The empirical results have crucial implications for the Reserve Bank of India and, as such, a conscious effort is needed to enable policy to influence the price indices of the states of India.

Suggested Citation

  • Anuradha Patnaik, 2018. "Price co-movements, commonalities and responsiveness to monetary policy: empirical analysis under Indian conditions," Asia-Pacific Sustainable Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 25(2), pages 77-97, December.
    • Handle: RePEc:unt:japsdj:v:25:y:2018:i:2:p:77-97
    as

    Download full text from publisher

    File URL: https://www.unescap.org/sites/default/files/APSDJ%20Vol.25%20No.2_pp77-97.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Robinson, Joan, 1969. "The Theory of Value Reconsidered," Australian Economic Papers, Wiley Blackwell, vol. 8(12), pages 13-19, June.
    2. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    3. Mr. Ron Alquist & Mr. Olivier Coibion, 2013. "The Comovement in Commodity Prices: Sources and Implications," IMF Working Papers 2013/140, International Monetary Fund.
    4. Sprinkel, Beryl W, 1975. "1975: A Year of Recession, Recovery, and Decelerating Inflation," The Journal of Business, University of Chicago Press, vol. 48(1), pages 1-4, January.
    5. Christiane Baumeister & Gert Peersman, 2013. "The Role Of Time‐Varying Price Elasticities In Accounting For Volatility Changes In The Crude Oil Market," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(7), pages 1087-1109, November.
    6. Stephen G. Cecchetti & Nelson C. Mark & Robert J. Sonora, 2002. "Price Index Convergence Among United States Cities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 1081-1099, November.
    7. Moon, H.R.Hyungsik Roger & Perron, Benoit, 2004. "Testing for a unit root in panels with dynamic factors," Journal of Econometrics, Elsevier, vol. 122(1), pages 81-126, September.
    8. Kaddour Hadri, 2000. "Testing for stationarity in heterogeneous panel data," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 148-161.
    9. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
    10. T. S. Breusch & A. R. Pagan, 1980. "The Lagrange Multiplier Test and its Applications to Model Specification in Econometrics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(1), pages 239-253.
    11. Baffes, John, 2007. "Oil spills on other commodities," Resources Policy, Elsevier, vol. 32(3), pages 126-134, September.
    12. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    13. Jushan Bai & Serena Ng, 2004. "A PANIC Attack on Unit Roots and Cointegration," Econometrica, Econometric Society, vol. 72(4), pages 1127-1177, July.
    14. Angus Deaton, 1999. "Commodity Prices and Growth in Africa," Journal of Economic Perspectives, American Economic Association, vol. 13(3), pages 23-40, Summer.
    15. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-666, September.
    16. R. L. Hall & C. J. Hitch, 1939. "Price Theory And Business Behaviour," Oxford Economic Papers, Oxford University Press, vol. 0(1), pages 12-45.
    17. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    18. Pindyck, Robert S & Rotemberg, Julio J, 1990. "The Excess Co-movement of Commodity Prices," Economic Journal, Royal Economic Society, vol. 100(403), pages 1173-1189, December.
    19. Schneider,Friedrich & Enste,Dominik H., 2016. "The Shadow Economy," Cambridge Books, Cambridge University Press, number 9781316600894, September.
    20. Ben S. Bernanke & Jean Boivin & Piotr Eliasz, 2005. "Measuring the Effects of Monetary Policy: A Factor-Augmented Vector Autoregressive (FAVAR) Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(1), pages 387-422.
    21. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 653-670, November.
    22. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    23. Manes, Eran & Schneider, Friedrich & Tchetchik, Anat, 2016. "On the Boundaries of the Shadow Economy: An Empirical Investigation," IZA Discussion Papers 10067, Institute of Labor Economics (IZA).
    24. Byrne, Joseph P. & Fazio, Giorgio & Fiess, Norbert, 2013. "Primary commodity prices: Co-movements, common factors and fundamentals," Journal of Development Economics, Elsevier, vol. 101(C), pages 16-26.
    25. Prebisch, Raúl, 1950. "The economic development of Latin America and its principal problems," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 29973, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    26. Tobin, James, 1981. "The Monetarist Counter-Revolution Today-An Appraisal," Economic Journal, Royal Economic Society, vol. 91(361), pages 29-42, March.
    27. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
    28. Manisha Pradhananga, 2016. "Financialization and the rise in co-movement of commodity prices," International Review of Applied Economics, Taylor & Francis Journals, vol. 30(5), pages 547-566, September.
    29. West, Kenneth D. & Wong, Ka-Fu, 2014. "A factor model for co-movements of commodity prices," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 289-309.
    30. repec:bla:obuest:v:61:y:1999:i:0:p:653-70 is not listed on IDEAS
    31. Robert W. Rich & Charles Steindel, 2005. "A review of core inflation and an evaluation of its measures," Staff Reports 236, Federal Reserve Bank of New York.
    32. Julio J. Rotemberg, 1982. "Monopolistic Price Adjustment and Aggregate Output," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(4), pages 517-531.
    33. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Trabelsi Ramzi & Jouini Wiem, 2019. "Causality Nexus between Economic Growth, Inflation and Innovation," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 10(1), pages 35-58, March.
    2. Mehdi Nemati & Wuyang Hu & Michael Reed, 2019. "Are free trade agreements good for the environment? A panel data analysis," Review of Development Economics, Wiley Blackwell, vol. 23(1), pages 435-453, February.
    3. Ozcan, Burcu, 2013. "The nexus between carbon emissions, energy consumption and economic growth in Middle East countries: A panel data analysis," Energy Policy, Elsevier, vol. 62(C), pages 1138-1147.
    4. Nnyanzi John Bosco & Kilimani Nicholas & Oryema John Bosco, 2022. "How important are remittances to savings? Evidence from the Latin America and the Caribbean Countries," IZA Journal of Development and Migration, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 13(1), pages 1-37, January.
    5. Eleftherios Thalassinos & Marta Kadłubek & Le Minh Thong & Tran Van Hiep & Erginbay Ugurlu, 2022. "Managerial Issues Regarding the Role of Natural Gas in the Transition of Energy and the Impact of Natural Gas Consumption on the GDP of Selected Countries," Resources, MDPI, vol. 11(5), pages 1-22, April.
    6. António Afonso & Christophe Rault, 2008. "3-Step Analysis of Public Finances Sustainability: the Case of the European Union," Working Papers hal-00322086, HAL.
    7. Angeliki N. Menegaki, 2019. "The ARDL Method in the Energy-Growth Nexus Field; Best Implementation Strategies," Economies, MDPI, vol. 7(4), pages 1-16, October.
    8. Nazlioglu, Saban & Karul, Cagin, 2017. "A panel stationarity test with gradual structural shifts: Re-investigate the international commodity price shocks," Economic Modelling, Elsevier, vol. 61(C), pages 181-192.
    9. Atwi, Majed & Barberán, Ramón & Mur, Jesús & Angulo, Ana, 2018. "CO2 Kuznets Curve Revisited: From Cross-Sections to Panel Data Models," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 40, pages 169-196.
    10. Haoran Zhao & Sen Guo & Huiru Zhao, 2018. "Impacts of GDP, Fossil Fuel Energy Consumption, Energy Consumption Intensity, and Economic Structure on SO 2 Emissions: A Multi-Variate Panel Data Model Analysis on Selected Chinese Provinces," Sustainability, MDPI, vol. 10(3), pages 1-20, March.
    11. Tiba, Sofien & Belaid, Fateh, 2020. "The pollution concern in the era of globalization: Do the contribution of foreign direct investment and trade openness matter?," Energy Economics, Elsevier, vol. 92(C).
    12. Chang, Ming-Jen & Su, Che-Yi, 2014. "Hysteresis versus natural rate in Taiwan's unemployment: Evidence from the educational attainment categories," Economic Modelling, Elsevier, vol. 43(C), pages 293-304.
    13. Imed Drine & Christophe Rault, 2008. "Purchasing Power Parity For Developing And Developed Countries. What Can We Learn From Non‐Stationary Panel Data Models?," Journal of Economic Surveys, Wiley Blackwell, vol. 22(4), pages 752-773, September.
    14. Belaïd, Fateh & Zrelli, Maha Harbaoui, 2019. "Renewable and non-renewable electricity consumption, environmental degradation and economic development: Evidence from Mediterranean countries," Energy Policy, Elsevier, vol. 133(C).
    15. Yasemin Özerkek & Sadullah Çelik, 2010. "The Link between Government Spending, Consumer Confidence and Consumption Expenditures in Emerging Market Countries," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 57(4), pages 471-485, December.
    16. Ajide, Kazeem & Ridwan, Ibrahim, 2018. "Energy consumption, environmental contaminants, and economic growth: The G8 experience," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 51, pages 58-83.
    17. Fang, Zheng & Chang, Youngho, 2016. "Energy, human capital and economic growth in Asia Pacific countries — Evidence from a panel cointegration and causality analysis," Energy Economics, Elsevier, vol. 56(C), pages 177-184.
    18. Das, Samarjit & Bhattacharya, Kaushik, 2004. "Price Convergence across Regions in India," Bonn Econ Discussion Papers 1/2005, University of Bonn, Bonn Graduate School of Economics (BGSE).
    19. Joseph P Byrne & Ryuta Sakemoto & Bing Xu, 2020. "Commodity price co-movement: heterogeneity and the time-varying impact of fundamentals [Oil price shocks and the stock market: evidence from Japan]," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 47(2), pages 499-528.
    20. Tsangyao Chang & Tsung-Pao Wu & Rangan Gupta, 2015. "Are house prices in South Africa really nonstationary? Evidence from SPSM-based panel KSS test with a Fourier function," Applied Economics, Taylor & Francis Journals, vol. 47(1), pages 32-53, January.

    More about this item

    Keywords

    price co-movements; panel cointegration; monetary policy;
    All these keywords.

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:unt:japsdj:v:25:y:2018:i:2:p:77-97. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Office of the Executive Secretary, ESCAP (email available below). General contact details of provider: https://edirc.repec.org/data/escapth.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.