2
$\begingroup$

I am replicating a 2001 Journal of Economic Perspectives methodology paper on Vector Autoregression by James H. Stock and Adam Watson. The paper can be found here: http://faculty.washington.edu/ezivot/econ584/stck_watson_var.pdf

I'm having a slight problem with the log differencing. In the paper the researchers state that they multiply the ln differenced price levels by 400.

I have no clue why this is done. The price level data is quarterly chain-weighted and seasonally adjusted implicit GDP deflator of the US. I would understand if they would multiply by four to get the annual inflation figures, but this is unclear. Any suggestions?

enter image description here

$\endgroup$
2
$\begingroup$

You already accounted for multiplication by 4. Further multiplication by 100 to make the units of measurement percentage points? I.e. inflation is usually referred to as 3%, not as 0.03.

$\endgroup$
  • $\begingroup$ Of course! Cheers, I feel like an imbecile! $\endgroup$ – Kukko Pärssinen Apr 24 '16 at 16:19
  • $\begingroup$ @KukkoPärssinen I have heard this question before :) If it solved your problem, please accept the answer by clicking the green check on its left. $\endgroup$ – Giskard Apr 24 '16 at 17:06

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.