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Fiaschetti, Maurizio and Marini, Giancarlo and Scaramozzino, Pasquale (2018) Intertemporal Consumption and the Measurement of Inflation: A Dynamic Inertial Price Index. London: CeFiMS.

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Abstract

This paper develops a new price index (DIPI) and discusses its characteristics and dynamics. By allowing for habit formation and inertia, our model extends typical dynamic indexes that have a forward looking component, thus providing a more effective support for the design of policy measures. We calculate the DIPI for a sample of goods for the US and prove its effectiveness in tracking business cycle, thus resulting in a more reliable indicator for the design of policy measures. Comparison with the official inflation measure matches the results of the Boskin Commission, which argues that CPI overestimates inflation.

Item Type: Monographs and Working Papers (Working Paper)
Keywords: Consumer price index, cost-of-living index, habit formation, inflation, monetary policy
SOAS Departments & Centres: Departments and Subunits > School of Finance & Management
Subjects: H Social Sciences > HA Statistics
H Social Sciences > HB Economic Theory
Date Deposited: 01 Oct 2018 11:01
URI: http://eprints.soas.ac.uk/id/eprint/26371

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