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http://hdl.handle.net/1893/28324| Appears in Collections: | Faculty of Health Sciences and Sport Letters (Published in a Journal) |
| Peer Review Status: | Refereed |
| Title: | Decomposing the misery index: A dynamic approach |
| Author(s): | Cohen, Ivan K Ferretti, Fabrizio McIntosh, Bryan |
| Keywords: | Business cycle Economic discomfort Misery index Okun's law Phillips curve |
| Issue Date: | 31-Dec-2014 |
| Date Deposited: | 22-Nov-2018 |
| Citation: | Cohen IK, Ferretti F & McIntosh B (2014) Decomposing the misery index: A dynamic approach. Cogent Economics and Finance, 2 (1), Art. No.: 991089. https://doi.org/10.1080/23322039.2014.991089 |
| Abstract: | The misery index (the unweighted sum of unemployment and inflation rates) was probably the first attempt to develop a single statistic to measure the level of a population’s economic malaise. In this letter, we develop a dynamic approach to decompose the misery index using two basic relations of modern macroeconomics:the expectations-augmented Phillips curve and Okun’s law. Our reformulation of the misery index is closer in spirit to Okun’s idea. However, we are able to offer an improved version of the index, mainly based on output and unemployment. Specifically,this new Okun’s index measures the level of economic discomfort as a function of three key factors: (1) the misery index in the previous period; (2) the output gap in growth rate terms; and (3) cyclical unemployment. This dynamic approach differs substantially from the standard one utilised to develop the misery index, and allow us to obtain an index with five main interesting features: (1) it focuses on output,unemployment and inflation; (2) it considers only objective variables; (3) it allows a distinction between short-run and long-run phenomena; (4) it places more importance on output and unemployment rather than inflation; and (5) it weights recessions more than expansions. |
| DOI Link: | 10.1080/23322039.2014.991089 |
| Rights: | © 2014 The Author(s). This open access article is distributed under a Creative Commons Attribution (CC-BY) 3.0 license You are free to: Share — copy and redistribute the material in any medium or format. Adapt — remix, transform, and build upon the material for any purpose, even commercially. The licensor cannot revoke these freedoms as long as you follow the license terms. Under the following terms: Attribution — You must give appropriate credit, provide a link to the license, and indicate if changes were made. You may do so in any reasonable manner, but not in any way that suggests the licensor endorses you or your use. No additional restrictions You may not apply legal terms or technological measures that legally restrict others from doing anything the license permits. |
| Licence URL(s): | http://creativecommons.org/licenses/by/3.0/ |
| File | Description | Size | Format | |
|---|---|---|---|---|
| decomposing the misery index.pdf | Fulltext - Published Version | 433.05 kB | Adobe PDF | View/Open |
Decomposing the Okun's misery index: A dynamic approach
What is it about?
The misery index (the unweighted sum of unemployment and infation rates) was probably the frst attempt to develop a single statistic to measure the level of a population’s economic malaise. In this letter, we develop a dynamic approach to decompose the misery index using two basic relations of modern macroeconomics: the expectations-augmented Phillips curve and Okun’s law. Our reformulation of the misery index is closer in spirit to Okun’s idea. However, we are able to ofer an improved version of the index, mainly based on output and unemployment. Specifcally, this new Okun’s index measures the level of economic discomfort as a function of three key factors: (1) the misery index in the previous period; (2) the output gap in growth rate terms; and (3) cyclical unemployment. This dynamic approach difers substantially from the standard one utilised to develop the misery index, and allow us to obtain an index with fve main interesting features: (1) it focuses on output, unemployment and infation; (2) it considers only objective variables; (3) it allows a distinction between short-run and long-run phenomena; (4) it places more importance on output and unemployment rather than infation; and (5) it weights recessions more than expansions
Why is it important?
The Great Recession has refocused the attention of macroeconomists on the determinants of business cycles, as well as on the consequences of recession on individual and community well-being. Originally proposed by Arthur Okun, the misery index (the unweighted sum of the unemployment and infation rates) was probably the frst attempt to develop a single statistic to measure the level of a population’s “economic malaise”. In this paper, we rewrite the misery index in order to improve its ability to track the state of health of the macroeconomy, without losing the clarity and conciseness of Okun’s original intuition. Specifcally, we develop a new approach in order to decompose the misery index into its main determinants. This “new misery index” focuses especially on unemployment and growth.
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