If one wants to analyze the influence of inflation on other macro economic indicators, what are the best/standard way of how to use it?

I've found 3 variants:

  1. As is (yearly values).

  2. To take logarithm of inflation, because in 1. the extreme values of the series take too much influence on the result.

  3. To take cumulative values, namely, inflation relative to some basic year, since it averages and in a sense smooths out the yearly fluctuations of inflation.

Are there some other approaches? And are there ways to check here that one approach is better than another?

  • $\begingroup$ I think your question would be improved if you gave some more specific examples of the kind of operations/analysis you're talking about. What specifically do you mean by "the influence of inflation on other macro economic indicators". Eg. nominal GDP clearly rises with rising prices but real GDP is always normalised to a price level in a given reference year so inflation doesn't effect it. $\endgroup$ Commented Nov 22, 2023 at 10:46
  • $\begingroup$ @JamieSmith Studying how inflation influences any other macro indicator. As in lag correlation, Granger causality test, panel analysis. Nominal or real GDP is one of the prime examples of what I have in mind. Actually inflation would be one of the parameters that influences GDP and the character of this influence to be found. Say, if inflation is high it could mean that the economy is in a bad shape and this could influence even real GDP. $\endgroup$
    – Andrew
    Commented Nov 22, 2023 at 19:00


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Browse other questions tagged or ask your own question.