a number of upward shocks. One of these shocks, the rise in energy (foremost oil) prices,
clearly led to higher but also more volatile rates of change in PPI energy prices, with its
subsequent impact on non-energy producer and consumer prices. In more recent years, this
has been amplified by increases in commodity prices (Chart 3), particularly metal which is
part of industrial raw material prices, as a result of high global demand, while the euro also
experienced significant fluctuations (Chart 4).
Chart 3 Commodity prices
(Quarterly rates of change; contributions)
Chart 4 Nominal effective exchange rate
(Quarterly rates of change; contributions)
Source: HWWI.
COMENE: energy commodity prices; COMIRM:
industrial raw material prices; COMFD: food
commodity prices, all in USD.
Source: ECB.
NEER: nominal effective exchange rate of the
euro.
We use panel estimation techniques, employing data for 10 euro area countries (Austria,
Belgium, Germany, Spain, France, Greece, Italy, Luxembourg, the Netherlands and Portugal)
for the cross-sectional dimension.5 As this covers more than 95% of the euro area, it allows
deriving pass-through coefficients for the euro area as a whole. The panel estimation helps to
improve the efficiency of the parameter estimation as we have a relatively short sample for
most series and we use a large number of regressors in our estimations. For example, the
HICPX components generally start around 1990 and for several countries the availability of
sectoral PPI data is also rather limited. We use quarterly data which generally deliver more
robust results. Data are seasonally adjusted on the basis of the ARIMA-X12 procedure. We
checked the dynamics of our equations and in particular the sum of the coefficients estimated
5 Appendix I describes the data sources and gives an overview of the data availability. Due to data
shortages, we had to exclude Ireland and Finland from the euro area 12 panel. Although French PPI
consumer goods data are available only from 1999 onwards, we have extended the data backwards
using non-durable and durable PPI up to 1995, and backcasting up to 1980 using PPI and PPI durable
goods.
MECB
Working Paper Series No 1104
November 2009