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Seminar - Intertemporal Consumption and the Measurement of Inflation: A Dynamic Inertial Price Index

  • S314 (Paul Webley Wing), SOAS University of London (map)

Speaker: Dr Maurizio Fiaschetti, Lecturer in Banking and Finance, SOAS University of London 
Chair:  Professor Victor Murinde, AXA Chair in Global Finance, SOAS University of London 

Abstract

This paper develops a new price index (DIPI) and discusses its properties and its dynamics. By allowing for habit formation and inertia, our proposed index extends previous dynamic indexes that only have a forward looking component, thus providing a more reliable indicator for the design of policy measures. We calculate the DIPI for a sample of goods for the US and illustrate its effectiveness in tracking business cycle. DIPI identifies a higher number of deflation periods and was on average lower than the CPI. Our results are in line with the recommendations of the Boskin Commission, which argued that CPI overestimates inflation.

Co-author: Pasquale Scaramozzino 

The seminars are sponsored by grants from DFID and ESRC [ESRC Ref: ES/N013344/2], ESRC and NSFC [ESRC Ref: ES/P005241/1] and AXA Research Fund