The standard measure of core or underlying inflation is the inflation rate excluding food and energy prices. This paper constructs an alternative measure, the weighted median inflation rate, for 38 advanced and emerging economies using subclass level disaggretion of the CPI over 1990-2021, and compares the properties of this measure to those of standard core. For quarterly data, we find that the weighted median is less volatile than standard core, more closely related to economic slack, and more closely related to headline inflation over the next year. The weighted median also has a drawback: in most countries, it has a lower average level than headline inflation. We therefore also consider a measure of core inflation that eliminates this bias, which is based on the percentile of sectoral inflation rates that matches the sample average of headline CPI inflation.
Archive for February 27th, 2023
Weighted Median Inflation Around the World: A Measure of Core Inflation
February 27, 2023Lending Apps: Old wine in a new bottle
February 27, 2023New article in Financial Express on lending apps in India.
The shape of business cycles: a cross-country analysis of Friedman’s plucking theory
February 27, 2023Milton Friedman’s “plucking theory” of the business cycle, implies that, like a guitar string, the harder an economy is “plucked down”, the stronger it should come back up.
This BIS paper studies the plucking theory in 12 advanced economies:
We test the international applicability of Friedman’s famous plucking theory of the business cycle in 12 advanced economies between 1970 and 2021. We find that in countries where labour markets are flexible (Australia, Canada, United Kingdom and United States), unemployment rates typically return to pre-recession levels, in line with Friedman’s theory. Elsewhere, unemployment rates are less cyclical. Output recoveries differ less across countries, but more across episodes: on average, half of the decline in GDP during a recession persists. In terms of sectors, declines in manufacturing are typically fully reversed. In contrast, construction-driven recessions, which are often associated with bursting property price bubbles, tend to be persistent.
From Mastercard to World Bank, Ajay Banga faces a similar set of challenges
February 27, 2023The US President has nominated Ajay Banga as President of World Bank.
In my new moneycontol article, I argue how Ajay Banga finds himself facing similr challenges as he faced heading Mastercard.
Mostly Economics 
