## Monday, August 11, 2008

### Working paper `Early warnings of inflation in India'

A new paper on this subject by Rudrani Bhattacharya, Ila Patnaik and myself has been released as a working paper by the Planning Commission and by NIPFP. The abstract reads: In India, year-on-year percentage changes of price indexes are widely used as the measure of inflation. In terms of monthly data, each observation of a one-year change in inflation is the sum of twelve one-month changes. This suggests that better information about inflationary pressures can be obtained using point-on-point monthly changes. This requires seasonal adjustment. We apply standard seasonal adjustment procedures in order to obtain a point-on-point seasonally adjusted monthly time-series of inflation in India. In three interesting high inflation episodes – 1994-95, 2007 and 2008 - we find that this data yields a faster and better understanding of inflationary pressures. A file with the key time-series data figuring in the paper has also been released for public download. Also see this article by Ila Patnaik in Indian Express which has a non-technical explanation of the paper.

#### 4 comments:

1. Run the out of sample test and release the Inflation pressure from now onwards and please see whether it does good prediction or not. Any empirical model can be baised due to benefit of hindsight.

2. The focus of this paper is not on forecasting inflation. It is on the underlying foundation of measuring inflation. The task of using this superior data, and building forecasting models of inflation, is a separate research project (which is assisted by the fact that we put out the data required for that work).

3. Many institutions limit access to their online information. Making this information available will be an asset to all.

4. "The government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it."

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