1 GDP 2 GDP - Universitat Rovira i...

Introduction to macroeconomics 10 February 2014 GDP & inflation rate 1

1 GDP

What is macroeconomics about?

• Macroeconomics studies the aggregate effects ofwhat people do.

• Most of what people do has to do with:

(i) the production and use (allocation) of goods(goods means “goods and services”);

(ii) the issuance and allocation (resale, trading,exchange) of financial assets.

• The activities related to (i) give rise to the realsector of an economy. Those related to (ii) give riseto the financial sector.

2 GDP

Wealth

• Wealth refers to, and is measured in terms of,goods. More wealth means having a higher amountof goods (to consume or to produce more goods).

• Aggregate production generated in economy du‐ring a given period of time can be used to mea‐sure the aggregate wealth created in during .

• A common measure of aggregate production is thegross domestic product (GDP): (market) value of allthe final goods (= not used to produce other goods)produced in an economy in a given period of time.

3 GDP

and the size of an economy

• GDP is a crude measure of how rich and how big aneconomy is. It excludes black market activities(underground or shadow economy = legal econo‐mic activity that is not taxed) and does not valuegoods that are not exchanged in markets (quality ofeducation, social institutions, leisure time…).

• Nominal GDP values production at current prices.Real GDP (GDP at constant prices or GDP adjustedfor inflation) values production each period usingthe prices of one period (called “base period”).Changes in nominal GDP are misleading: they mayreflect changes in production and prices.

4 GDP

Size of the shadow economy 2012 (% GDP)Friedrich Schneider, www.econ.jku.at/members/.../ShadEcEurope31.pdf

5 GDP

Shadow economy in Spain(% of GDP)Jordi Sardà: “La economíasumergida pasa factura” (2014)www.gestha.es

6 GDP

“Good” or “bad” for the economy? /1

• The outcomes (or the state) of an economy aresubject to assessment: is it “good” or “bad” to havemore (or less) shadow economy?

• There is in general no clear‐cut answer: someoutcomes/states may be favourable to some peopleand, simultaneously, detrimental to other people.

• Shadow economy: favours those taking part (theydo not pay taxes); is detrimental to the rest (unfaircompetition to rival firms and probably a highertax burden for the non‐participants in the shadoweconomy, to compensate tax evasion).


7 GDP

“Good” or “bad” for the economy? /2

• A high interest rate is more beneficial to lendersthan a lower one, as they receive more for lendingmoney. Yet, borrowers are worse off with a higherthan with a lower interest rate, since they have topay more for getting a loan of money. Better highor low depends on the importance of each group.

• It is easier for European exporters to export to theUS the lower the exchange rate (expressed in $/€),since the lower the rate, the more euros Americansget from 1 $. But the lower the rate, the fewer thedollars Europeans consumers obtain from 1 €, sothe more costs (in euros) buying American goods.

8 GDP

GDP (US$ trillions) ∙ 7 February 2014http://www.tradingeconomics.com

1.8

15.6USA

1.1

0.47

2.4

2.63.4

2

0.38

0.26

0.018

0.57 1.8

0.8

1.5

5.91.18.2

2

0.7

0.52

2.4

0.240.25

1.34Ranking: 14

9 GDPhttp://www.tradingeconomics.com ∙ 7 February 2014 10 GDP

Computing GDP : an example

• GDP (nominal GDP) at 1 is 4 6 2 8 40 (monetary units of 1).

• GDP at 2 is 9 5 3 560(monetary units of 2). From 1 to 1,GDP has increased a 50%: 100.

1 4 6 2 8

2 9 5 3 5

11 GDP

Computing GDP : an example

• GDP (real GDP) in period 1at constant pricesof period 1 is 4 6 2 840 (monetary units of 1). So GDP = GDP at thebase period (this always happens).

• GDP in 2 at constant prices of period 1 isgiven by 4 5 2 5 30 (mo‐netary units of 1). GDP has fallen a 25%.

• With base period 2: GDP in 1 is9 6 3 8 78; GDP in 2is9 5 3 5 60. GDP has fallen a 23%.

12 GDP

Strategic use of data

• Economic variables are meaningless withoutspecifying its units of measurement (if any).

• On the other hand, people whose interests areaffected by economic information may have anincentive to disclose information selectively.

• In the previous example, a government isinterested in informing citizens of only the increasein nominal GDP. The opposition would instead liketo point to the fall in real GDP. And if forced tomention real GDP, the government prefers to takeperiod 2 as the base (smaller reduction of real GDP).


13 GDP

Nominal variable

• A nominal variable is measured in terms of currentprices.

• Changes of current prices may affect the nominalvariable.

• The typical nominal variable is measured in(current) monetary units.

• Examples: GDP at current prices, money stock,(nominal) interest rate, (nominal) exchange rate,and consumser price index (CPI).

14 GDP

0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

0,9

1

1,1

2012201120102009200820072006200520042003200220012000

GDP‐SPAIN

GDP‐CATALONIA

CONSUMPTION‐CATALONIA

CONSUMPTION‐SPAIN

GDP & consumpion(current prices, EUR trillion)

http://www.idescat.cat/economia/inec?tc=5&id=5107&dt=201200&lang=e

15 GDP

Real variable

• A real variable measures physical quantities. Realvariables are not affected by current prices.

• Some real variables, like total employment or theunemployment rate, need no price to be defined.

• Others are defined by fixing prices, like GDP atconstant prices, which measures production usingthe prices of a base period.

• Still others come from nominal variables by remo‐ving the effects of prices, like the real interest rate.

16 GDP

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

13000

14000

15000

16000

17000

18000

19000

20000

21000

22000

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

NOMINAL GDP

REAL GDP

Spain, GDP (billions of pesetas)http://www.ine.es/daco/daco42/daco4214/cntrb86.xls

17 GDP

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

13000

14000

15000

16000

17000

18000

19000

20000

21000

22000

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

NOMINAL GDP

REAL GDP

REAL CONSUMPTION

NOMINALCONSUMPTION

Spain, GDP & consumption (billions of pesetas)http://www.ine.es/daco/daco42/daco4214/cntrb86.xls

18 GDP

Spain, GDP (billions of US dollars)http://www.tradingeconomics.com/spain/gdp


19 GDP

0

100

200

300

400

500

600

700

800

900

1000

1100

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Spain, GDP at constant prices (EUR billion)http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/weoselgr.aspx

20 GDP

0

100

200

300

400

500

600

700

800

900

1000

1100

1200

1300

1400

1500

1600

1700

1800

1900

2000

2100

2200

2300

2400

2500

2600

2700

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

GDP at constant prices (EUR billion)http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/weoselgr.aspx

FRA

GER

SPA

ITA

GRE

21 GDP

Stock variable vs flow variable

• A stock variable is measured in levels rather thanrates of change.

• A flow variable is measured in rates per unit oftime rather than levels.

• GDP is a flow variable, as it measures productionduring a period of time (so GDP is production perunit of time).

• Population at a given moment of time is a stockvariable. Wealth is also a stock variable.

22 GDP

Rates

• The term “rate” in “GDP growth rate” refers to arelative (in percentage terms) change in GDP.

• This formula gives the rate of change per one. Toget a percentage, multiply by 100. If GDP 40

and GDP 50, the rate of change is

0.25 (per one); that is, 25%.

• “Rate” in “exchange rate” means “ratio” (relativeprice) and “amount” in “interest (or wage) rate”.

GDPgrowthrate(from period 1 to )

GDP GDPGDP

23 GDP

Spain, real GDP annual growth rate (quarterly, % change)http://www.tradingeconomics.com/spain/gdp‐growth‐annual

24 GDP

‐5,5

‐5

‐4,5

‐4

‐3,5

‐3

‐2,5

‐2

‐1,5

‐1

‐0,5

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

5

5,5

6

6,5

7

7,5

8

8,5

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Spain, real GDP growth (quarterly, % change)http://www.ine.es/jaxiBD/tabla.do?per=03&type=db&divi=CNTR&idtab=9#nogohttp://www.ine.es/jaxi/menu.do?type=pcaxis&path=%2Ft35/p009&file=inebase&L=0


25 GDP

‐18

‐16

‐14

‐12

‐10

‐8

‐6

‐4

‐2

0

2

4

6

8

10

12

14

16

18

20

22

24

III/2013

II/201

3I/2013

IV/2012

III/2012

II/201

2I/2012

IV/2011

III/2011

II/201

1I/2011

IV/2010

III/2010

II/201

0I/2010

IV/2009

III/2009

II/200

9I/2009

IV/2008

III/2008

II/200

8I/2008

IV/2007

III/2007

II/200

7I/2007

IV/2006

III/2006

II/200

6I/2006

IV/2005

III/2005

II/200

5I/2005

IV/2004

III/2004

II/200

4I/2004

IV/2003

III/2003

II/200

3I/2003

IV/2002

III/2002

II/200

2I/2002

IV/2001

III/2001

II/200

1I/2001

CATALONIA

AGRICULTURE

INDUSTRY CONSTRUCTION

SERVICES

SPAIN

Real GDP growth(quarterly, % annual change)http://www.idescat.cat/economia/

inec?tc=5&id=0007&dt=201303

26 GDP

‐18

‐17

‐16

‐15

‐14

‐13

‐12

‐11

‐10

‐9

‐8

‐7

‐6

‐5

‐4

‐3

‐2

‐1

0

1

2

3

4

5

6

7

8

9

10

III/2013

I/2013

III/2012

I/2012

III/2011

I/2011

III/2010

I/2010

III/2009

I/2009

III/2008

I/2008

III/2007

I/2007

III/2006

I/2006

III/2005

I/2005

III/2004

I/2004

III/2003

I/2003

III/2002

I/2002

III/2001

I/2001

CATALONIA

INDUSTRYCAT‐SPA

CONSTRUCTIONCAT‐SPA

SERVICESCAT‐SPA

SPAIN

Real GDP growth(quarterly, % annual change)http://www.idescat.cat/economia/inec?tc=5&id=0007&dt=201303

27 GDP

‐11

‐10

‐9

‐8

‐7

‐6

‐5

‐4

‐3

‐2

‐1

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

ARG

CHINA

GREECE

SPA

GDP at constant prices (% change)http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/weoselgr.aspx

28 GDP

‐5,5

‐5

‐4,5

‐4

‐3,5

‐3

‐2,5

‐2

‐1,5

‐1

‐0,5

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

5

5,5

6

6,5

7

7,5

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

US

SPAINGERMANY


29 GDP

‐7

‐6

‐5

‐4

‐3

‐2

‐1

0

1

2

3

4

5

6

7

8

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

GREECE

US

SPAIN

JAPAN


30 GDP

GDP growth rate (annual, %) ∙ 7 February 2014http://www.tradingeconomics.com

3.74.1

4.4-3-1.8-0.1

0.21.1

4.92.8

2.10.3

1.9

2.7

1.3

12.4Nicaragua 5.1

12.9

5.5

7.6

4.5

7.6

1.8

8.1

-0.6

1

3.5

2.3

5.7

2.43.97.7

4.8

1.2

11.56

3.1

-55.8South Sudan

-5.5

95.5Libya


31 GDP

http://w

ww.tradingeconomics.com

∙ 7 Feb

ruary 2014

32 GDP

http://w


∙ 7 Feb

ruary 2014

33 GDP

Potential GDP and output gap

• Potential (or “natural”) GDP refers to the maximumGDPlevel that an economy can sustain over time.

• The output gap is the difference between potentialGDPand actual GDP . It could be viewed as ameasure of the degree to which an economy isperforming well.

• When GDP is below potential, some productioninputs must lie idle (remain unused). The more it isbelow, the higher unemployment is expected to be.

34 GDP

‐5

‐4,5

‐4

‐3,5

‐3

‐2,5

‐2

‐1,5

‐1

‐0,5

0

0,5

1

1,5

2

2,5

3

3,5

4

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Spain, output gap (% of potential GDP)http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/weoselgr.aspx

35 GDP

Average wealth

• Real GDP per capita provides a measure of howdeveloped or “prosperous” an economy is. It canbe interpreted as a measure of the averagestandard of living in the economy.

• Real GDP per capita is defined as the ratio of realGDP to the population of the economy.

• Real GDP per capita is positevely correlated withmany indicadors of economic development and thequality of life: life expectancy, subjective well‐being, education, health care expenditure…

36 GDP

GDP per capita strongly correlatedwith Human Development Indexhttp://en.wikipedia.org/wiki/Human_Development_Index


37 GDP

0

2500

5000

7500

10000

12500

15000

17500

20000

22500

25000

27500

30000

32500

35000

37500

40000

42500

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

US

GDP per capita (current prices & exchange rates, EUR per person)http://www.bde.es/webbde/es/estadis/ccff/csvs/cf0319.csv

EUROPEANUNION

38 GDP

0

2500

5000

7500

10000

12500

15000

17500

20000

22500

25000

27500

30000

32500

35000

37500

40000

42500

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

JAPAN

EUROPEANUNION


US

39 GDP

0

2500

5000

7500

10000

12500

15000

17500

20000

22500

25000

27500

30000

32500

35000

37500

40000

42500

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012


EUROPEANUNION

JAPAN

GERMANY

US

40 GDP

0

2500

5000

7500

10000

12500

15000

17500

20000

22500

25000

27500

30000

32500

35000

37500

40000

42500

198

0

198

1

198

2

198

3

198

4

198

5

198

6

198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

GERMANY

SPAIN

JAPAN

EUROPEANUNION


US

41 GDP

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

22000

24000

26000

28000

30000

32000

1870

1873

1876

1879

1882

1885

1888

1891

1894

1897

1900

1903

1906

1909

1912

1915

1918

1921

1924

1927

1930

1933

1936

1939

1942

1945

1948

1951

1954

1957

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

USAGDP per capita 1870‐2008 (1990 IGK dollars)http://www.ggdc.net/maddison/Historical_Statistics/horizontal‐file_02‐2010.xls

WESTERNEUROPE

SPAIN

WORLD

42 GDP

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

13000

14000

15000

16000

17000

18000

19000

20000

1913

1915

1917

1919

1921

1923

1925

1927

1929

1931

1933

1935

1937

1939

1941

1943

1945

1947

1949

1951

1953

1955

1957

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

GDP per capita 1913‐2008 (1990 IGK dollars)http://www.ggdc.net/maddison/Historical_Statistics/horizontal‐file_02‐2010.xls

SPAIN

CANADA

ARGENTINA

CHINA

BRAZIL

INDIA


43 GDP

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

13000

14000

15000

16000

17000

18000

19000

20000

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

GDP per capita 1950‐2008 (1990 IGK dollars)http://www.ggdc.net/maddison/Historical_Statistics/horizontal‐file_02‐2010.xls

SPAIN

AFRICAASIA

WORLD

FORMERUSSR

LATIN AMERICA

44 GDP

Short run vs long run

• “Short run” refers to a relative short period of time(a few months to a couple of years). In that periodit is presumed that some factors or variables(technology, population) are essentially constant.

• Short‐run macroeconomics focuses on explainingthe oscillations of real GDP (the business cycle).

• In the long run everything may change. Long‐runmacroeconomics tries to explain the evolution ofreal GDPper capita (long‐run economic growth).

45 GDP

3,000 years of world economic history in one chartGregory Clark (2007): A farewell to alms. A brief economic history of the world, p. 2

Crucial factor:rate of technological advance?

46 GDP

Competing conceptual frameworks

• (Neo)Classical economists contend that

markets work well by themselves (produce fullemployment without government help) in aworld of rational and perfectly informed agents;

money is neutral (more money only meanshigher inflation) and exogenous;

only supply matters in the long‐run.

• Post[‐]Keynesians hold the opposite: crucial role ofuncertainty; need to regulate markets (they areunstable); endogeneity of money; demand alwaysmatters; importance of the distribution of wealth.

47 GDP

On “economic reality”

• Physicists face the problem that the act of knowingreality changes reality: “seeing” a particle requiresinteracting with it, and the interaction alters the(characteristics of the) particle.

• The understanding economic reality presumes aconceptual framework that guides our interactionwith reality and within which reality is interpreted.

• The same reality may be interpreted differently inalternative frameworks. What is “actually” thechange in real GDP on slide 10? What is “actually”depicted on the next three slides?

48 GDP

Old woman or young lady?Steven Mark Cohn (2006) Reintroducing macroeconomics, p. 5


49 GDP

The Necker cubeDaniel Reisberg (2009)Exploring the science of mind, p. 62

50 GDP

The vase/profiles figureDaniel Reisberg (2009) Exploring the science of mind, p. 63

51 GDP

Hidden figure: is it “really” there or are we making it up?(Does the answer depend on whether you know English?)

Daniel Reisberg (2009) Exploring the science of mind, p. 64

52 GDP

Price indices

• A price index is a measure of the general price levelof an economy. This level can be thought of as aweighted average of the prices of all the goods.

• By assuming the fiction that there is a unique goodin the economy (the domestic product), ifGDPmeasures the quantity of the good, then theprice level would represent the price of the good.

• As distinguished from GDP, price indices have nounits and the value by itself means nothing. It isthe rate of change of the index that is informative.

53 GDP

The (implicit price) deflator

• The GDPdeflator is a price index defined as

• It measures the changes in prices in all the goodsproduced in an economy between the base periodused in the real GDP and the current period.

• If GDP 100, GDP 80, GDP 135, andGDP 90, then GDP deflator 100/80 1.25and GDP deflator 135/90 1.5, indicating ageneral price increase.

GDPdeflator .NominalGDP

RealGDP

54 GDP

Consumer price index

• The CPI is a measure on the cost of purchasing afixed basket of goods of a consumer consideredrepresentative.

• The CPI in period is defined as

• For the index to have base 100, just multiply theright‐hand side by 100.

CPI .valueofthebasketatpricesofperiod

valueofthebasketatpricesofthebaseperiod


55 GDP

Differences between and deflator

• The CPI generally includes imported goods.

• The GDP deflator does not: it only includes thegoods produced in the economy, not abroad.

• The basket of goods in the GDP deflator may varyfrom period to period.

• The basket in the CPIgenerally does not.

• Despite all that, both indices are strongly correlatedand tend to move in parallel.

56 GDP

0

10

20

30

40

50

60

70

80

90

100

110

120

130

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

CPI

GDP DEFLATOR

Spain, CPI and GDP deflatorhttp://www.imf.org/external/pubs/ft/weo/2013/02/weodata/weoselgr.aspx

57 GDP

Computing a : an example

• The basket is given by , , 3, 2, 1

• Taking 1 as the base period, CPI /1; CPI / 1; CPI /

0.75; and CPI / 1.25.

1 1 4 5 3 1 2 4 1 5 162 2 1 8 3 2 2 1 1 8 163 3 1 1 3 3 2 1 1 1 124 2 5 4 3 2 2 5 1 4 20

58 GDP

Inflation rate

• The inflation rate associated with the price indexis the rate of change of the price index :

where is the price index in the current period andis the one in the immediately preceding period.

• To express the inflation rate as a percentage,multiply by 100 the right‐hand side. For instance, if

50 and 40, then 0.2525% : the price index has been pushed up a 25%.

59 GDP

‐1

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

CPI INFLATION RATE

GDP DEFLATOR INFLATION RATE

Spain, CPI inflation rate and GDP deflator inflation ratehttp://www.imf.org/external/pubs/ft/weo/2013/02/weodata/weoselgr.aspx

60 GDP

Spain, CPI inflation rate(% anual change)

Spain, CPI (index)

http://w

ww.tradingeconomics.com/spain/consumer‐price‐index‐cp

http://w

ww.tradingeconomics.com/spain/inflation‐cp


61 GDP

Inflation rate: an example

• Let be the inflation rate associated with the CPIof the previous example (slide 57). In this case:

is not defined (since there is no CPI )

0

.

0.25 or 25%

. .

. or66.6%

• If is calculated, for instance, from 1 to 4,

then → = .

0.25 25% .

62 GDP

Inflation rate ∙ 7 February 2014http://www.tradingeconomics.com

1.2

1.5

4

10.9

5.9

56.1Venezuela

3.1 2

2

0.1

0.70.2

0.449.5

2.7

8.22

1.61.12.5

12.5

6.1

35.5

29.4

11.7

15.331.3

6.1

1.8

5.25

8

-1.77.750.7

-8.8Sudan del Sud

63 GDPhttp://w


∙ 7 Feb

ruary 2014

64 GDPhttp://w


∙ 7 Feb

ruary 2014

65 GDP

Inflation concepts

• As an economic phenomenon, inflation refers tothe sustained increase of the CPI . It occurs forperiods during which the inflation rate is positive.

• Deflation is the opposite phenomenon: sustaineddecrease of the CPI (negative inflation rates).

• Disinflation takes place when, during inflation, theinflation rate diminishes (but remains positive).

• Hyperinflation occurs with astronomical inflationrates (montly inflation rates of at least 50%). Undera hyperinflation, inflation is out of control.

66 GDP

‐2

‐1

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

1982

1981

1980

1979

1978

1977

1976

1975

1974

1973

1972

1971

1970

1969

1968

1967

1966

1965

1964

1963

1962

Spain, inflation rateJanuary 1962 – December 2013 (% annual change)

http://www.ine.es/jaxiBD/menu.do?L=0&divi=IPC&his=5&type=db

January 2014 : 0.2%


67 GDP

‐1,5

‐1

‐0,5

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

5

5,5

6

6,5

7

7,5

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

Spain, inflation rateJanuary 1990 – December 2013 (% annual change)

http://www.ine.es/jaxiBD/menu.do?L=0&divi=IPC&his=5&type=db

68 GDP

‐2

‐1

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

1979M01

1980M01

1981M01

1982M01

1983M01

1984M01

1985M01

1986M01

1987M01

1988M01

1989M01

1990M01

1991M01

1992M01

1993M01

1994M01

1995M01

1996M01

1997M01

1998M01

1999M01

2000M01

2001M01

2002M01

2003M01

2004M01

2005M01

2006M01

2007M01

2008M01

2009M01

2010M01

2011M01

2012M01

2013M01

Spain, Catalonia, inflation rateJanuary 1979 – December 2013 (% annual change)

http://www.ine.es/jaxiBD/tabla.do?per=01&type=db&divi=IPC&idtab=124

CATALONIA

SPAIN

69 GDP

‐1,5

‐1

‐0,5

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

5

5,5

6

1993

M01

1994

M01

1995

M01

1996

M01

1997

M01

1998

M01

1999

M01

2000

M01

2001

M01

2002

M01

2003

M01

2004

M01

2005

M01

2006

M01

2007

M01

2008

M01

2009

M01

2010

M01

2011

M01

2012

M01

2013

M01

Spain, Catalonia, inflation rateJanuary 1993 – December 2013 (% annual change)http://www.ine.es/jaxiBD/tabla.do?per=01&type=db&divi=IPC&idtab=124

SPAIN

CATALONIA

70 GDP

‐1,5

‐1

‐0,5

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

5

5,5

2003

M01

2003

M07

2004

M01

2004

M07

2005

M01

2005

M07

2006

M01

2006

M07

2007

M01

2007

M07

2008

M01

2008

M07

2009

M01

2009

M07

2010

M01

2010

M07

2011

M01

2011

M07

2012

M01

2012

M07

2013

M01

2013

M07

Spain, Catalonia, inflation rateJanuary 2003 – December 2013

(% annual change)

http://www.ine.es/jaxiBD/tabla.do?per=01&type=db&divi=IPC&idtab=124

SPAIN

CATALONIA

71 GDP

Core inflation rate

• The core (as opposed to headline) inflation rate iscomputed by excluding the prices of food andenergy prices, which tend to be very volatile.

• It is a measure of underlying long‐term inflation. Itcan also be used as an indicator of future inflation.

http://www.tradingeconomics.com/spain/core‐inflation‐rate

Spain, core inflation rate(% annual change)


72 GDP

Spain, core inflation rate(% annual change)

Spain, CPI inflation rate(% annual change)

http://www.tradingeconomics.com/spain/inflation‐cpi


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