Friday, June 19, 2009

Has Mankiw Turned Inflation Hawk?

Harvard prof Grerg Mankiw came out with some very, shall we say, unique proposals to deal with a deflation threat he perceived was about to hit the economy.

But that was so yesterday. Now, he doesn't believe the low inflation numbers coming out of the government:

As every grade school student learns when the teacher reports results of the latest test, the average of any data set can be thrown off by a few extreme outliers; the median is a more robust statistic to estimate the central tendency in the data.

Right now, the two measures of inflation are diverging substantially. The standard CPI shows deflation over the past year, but that average is due to a few anomalous sectors, such as energy. If you look at the median CPI, which shows what a more typical price is doing, the inflation rate does not look very unusual.

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