Cointegration analysis on the relationship between Consumer Price Index and electricity price

Abstract

Electricity plays an important role in people's daily life, so electricity price adjustment is a sensitive topic. In this paper cointegration theory is used to analyze the quantitative relationship between Consumer Price Index and electricity price. At first, literature overview is taken for the relationship between Consumer Price Index and electricity price. Secondly, the basic principles of co-integration theory and Granger Causality Test are introduced, including the stability test, cointegration tests and Granger Causality Test. Then, explorative analysis is taken. The researches of the relationship between the two were almost using qualitative method in the past, lack of quantitative research. This paper is to explore the relationship between Consumer Price Index and electricity price using quantitative method. We get the conclusion that there isn't long-term cointegration relationship between CPI and electricity price. The results show that they haven't effect on each other.