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December 2006

Price transmission: from crude petroleum to plastics products

Jonathan C. Weinhagen

A structural vector autoregression (VAR) model of supply and demand examines the effects of crude-petroleum price shocks on the market for plastics products. The VAR is estimated with monthly data from the Producer Price Indexes for Crude Petroleum, Organic Chemicals, and Plastics Products, as well as the Federal Reserve's indexes for plastics production and overall industrial production, from January 1974 through December 2003. The model reveals that positive (negative) price shocks to crude petroleum have a positive (negative) effect on prices for both organic chemicals and plastics products and a negative (positive) effect on the quantity of plastics products.

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