Which Price Index Should a Central Bank Employ?

From: Economic Quarterly - Federal Reserve Bank of Richmond | Date: April 1, 2004| Author: | Copyright information

In the 1970s the United States experienced inflation rates that were high relative to any other decade in the nation's peacetime experience. During that decade the consumer price index doubled, rising at a 7.4 percent average annual rate. At one point in the early 1980s, the CPI inflation rate exceeded 14 percent for a full year. When inflation was that high, the choice of which price index to employ to calculate inflation was a secondary concern for policymakers. As Figures 1 and 2 will indicate later in this article, commonly used price indexes gave the same message: inflation in the 1970s ...

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