Price connectedness and input–output linkages: Evidence from China

Abstract

In contrast to the aggregate level, prices at the industry level are flexible. Meanwhile, the majority of the studies on price connectedness through production networks have focused on the supply side and direct transmission, with less attention on the demand side and indirect transmission of price. Thus, this study constructs a network model and analyzes the spillover effect of price at the industry level by using China's supply-side producer price index and demand-side consumer price index from 2007 to 2019. The results show that the spillover effect from the supply-side price to the demand-side price is larger than vice versa. As for the other findings, direct input–output linkages between industries increase the intensity of price spillovers, while the aggregate effect of indirect price transmission has a greater influence on price connectedness than the effect of direct price transmission.