Long run relationship between CPI and WPI: Evidence from Pakistan

Abstract

The prime objective of this article is to judge the long-run/dynamic relationship between two widely used indexes i.e. Consumer Price Index (CPI) and the Wholesale Price Index (WPI) computed in Pakistan. Various statistical tests like Engle and Granger (1987) and Johansen’s (1988) co integration tests have been employed for checking the long-run stability between these two indexes. The results reveal that both the series CPI and WPI are co integrated when we apply EG test for 90% but not for 95% and 99%. With the multivariate Johansen test the series are co integrated. The results are also checked for seasonally adjusted series and the findings are same. The results agree about the long run relationship between the series.