Daily Archives: January 11, 2013

Having written rather outspoken columns about conceptual errors in the Retail Prices Index and criticising the UK statistical authorities for ducking the challenge of rectifying these errors, quite a few people have asked for some numeric examples about the scale of the problem so they can understand better how it arises.

(People who want the real gory detail should look at professor Erwin Diewert’s report)

The first thing to note is that contrary to well-intentioned explainers such as this one from the BBC, or the otherwise-rather-good editorial in today’s Times newspaper, the problem in the calculation of the RPI is not to do with the difference between geometric averages and arithmetic averages. It is really about the deficiencies of one particular arithmetic average, the Carli index.

Don’t just believe me, play with this spreadsheet, (Price indices). I will also help you to use it with a few worked examples. The worked examples are extremes, but they serve to show the important biases of different ways of calculating inflation. Read more

By Gillian Tett

Four years ago, Zoltan Pozsar helped change how policy makers visualise the financial world when he worked with colleagues at the New York Federal Reserve to create a gigantic wall map of shadow banking. Astonishingly, it was the first time anyone had laid out these financial flows in detailed, graphic form. And by doing that, the NY Fed researchers showed why the sector mattered – and why policy makers needed to rethink how the financial ecosystem did (or did not) work.

Now Pozsar has left the NY Fed and teamed up with Paul McCulley, the former investment luminary of Pimco (and the man who coined that phrase “shadow banking”) to tackle another issue. But this time, it is not securitisation they want to “map” – but “helicopter money”, or quantitative easing.

 Read more