A Study On The Correlation Between China’s CPI And PPI Based On Variable Structure Copula

At the December 2022 Central Economic Work Conference,it was highlighted that the macroeconomic regulation of the future must prioritize price stability and economic growth.The Consumer Price Index and Producer Price Index are the two main components of our nation’s Price system,enabling it to judiciously allocate market resources and accurately anticipate the alteration of the overall price level.But starting in 2020,CPI and PPI diverged,and in October of the same year,the “Scissors gap” between the two indices reached a record high of 12%,the deviation between the two brings the dilemma to judge the overall price trend and the economic situation,and also brings the challenge to the macro-policy-making.Exploring the economic factors behind the divergence between the two is beneficial to a more thorough comprehension of the law of price operation,and to more effectively regulate and regulate the total price level,for the post-epidemic era of our nation’s economic prosperity has an essential practical benefit.In 2014 marked a significant shift in China’s economy,transitioning from rapid growth to a high-quality one,thanks to the introduction of supply-side structural reform and the notion of high-quality economic growth.Under the current complex and uncertain environment,our country’s economy has presented the “New normal”,the growth rate slows down,the economic structure reform,the drive turns.Beginning in 2014 and concluding in 2021 to rectify the inadequacies of the prior literature,this thesis has chosen 2014 as its starting point.At the same time,combined with the CPI and PPI is not clear and unstable correlation,the non-linear model is proposed to study the correlation between CPI and PPI in our country.Second,the marginal distribution of CPI and PPI from January to December in 2014 was simulated by using the nuclear distribution method,and the marginal distribution of CPI and PPI was 2021 by the core distribution method,t-copula may be the most suitable function model to fit the correlation between the two.Thirdly,the T-copula function is the best function model to describe the correlation between CPI and PPI by estimating the parameters of five common Copula functions with maximum likelihood.Secondly,on the basis of binary normal Copula model,considering the influence of economic cycle factors comprehensively,the variable structure Copula model is used to further model the period under investigation to find the variable structure point,the whole study period was analyzed in three stages.Finally,according to the empirical results,a preliminary empirical analysis.The correlation coefficient between CPI and PPI in China,as revealed by the analysis,has drastically decreased from 0.7 post-2014 to a mere 0.1 to 0.2 by 2020-a stark indication that,as the economy enters a new normal,the correlation between CPI and PPI has experienced the most drastic alteration.During the study period,two variable structure points were found.The first variable structure point appeared in February 2015,and this thesis speculates that the analysis may be influenced by the central bank’s monetary policy;the second variable structure point appeared in May 2020,and may be caused by external shocks.Taken together,CPI and PPI show a trend of mutual divergence,scissors continue to expand,will eventually lead to slower economic growth.This thesis,based on the forecast of economic cycle fluctuation and analysis of future economic situation,offers pertinent policy suggestions in accordance with the 20 th Party Congress’ report and the Central Economic Working Conference’s instructions,thus furnishing a reference for our nation’s economic endeavors in the present and future.