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For this box you will analyze different measures of inflation. Inflation is the
For this box you will analyze different measures of inflation. Inflation is the increase of prices over time; however, there are several ways of doing so, and some measures may be more relevant than others for a particular question.
The cost of a representative basket of household consumption goods is given by the CPI (Consumer Prices Index); the equivalent for firms is the PPI (Producer Price Index); and the broadest measure of prices is the GDP deflator which is defined as the ratio of Nominal GDP to Real GDP. And also, firms involved with foreign markets either in goods, services, or capital, pay attention to the relative value of the U.S. Dollar, that is, the exchange rate as it is affected by inflation, as we learned.
Get the following series from the St. Louis Federal Reserve Bank FRED database from 1990 onwards:
– CPI: Consumer Price Index for all Urban Consumers: all Items (CPIAUCSL —EDIT GRAPH to quarterly frequency and to Percent Change from a Year Ago)
– PPI: Producer Price Index for all Commodities (PPIACO — EDIT GRAPH to quarterly frequency and to Percent Change from a Year Ago)
– Gross Domestic Product: Implicit Price Deflator (GDPDEF — EDIT GRAPH to Percent Change from a Year Ago)
Plot the three series together [25 points each].
Use the chart from FRED to document and describe the co-movement of these price indicators.
Your writing should reflect familiarity to the concepts and definitions and should unify them into a common framework [25 points]. For this Box do not use Excel graphs.
Tips
Can I plot both monthly growth rates and quarterly growth rates in the same graph? No.
You can’t graph monthly and quarterly together, the instructions call for setting them at quarterly frequency.
Can I use my own Excel graphs? No.
This time we will practice the quick referencing of government information as part of an inflation report.
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