Cointegration and Granger Causality tests on Spanish and German Consumer Prices
This paper employs cointegration and Granger causality tests to determine a relationship between the Spanish and the German inflation for the sample period 1976:1-1999:4 employing quarterly data. The results suggest that there is a bi-directional causality between German and Spanish inflation for the entire period as well as for the first sub-period. In the second subperiod (1986:1-1999:4) there was a stronger influence of German on Spanish prices in the short run than in the long run. This implies that not only Germany has a substantial influence on Spain, but also Spain's inflation affects Germany in a significant way. Thus, Germany can be considered as an influential country, which plays a significant role in the EU.