Real GDP Is Likely Not Correct As The Inflation Estimates Are Weird

We revisited several times our original post published in 2011 on biased metrology of macroeconomic measurements. New data are needed to validate the original hypothesis or to reject it. It is important to retain in mind that economics as science often fails and gives counterproductive results due to inaccurate or biased measurements of the most basic macroeconomics variables – price inflation, labor force, unemployment, nominal GDP. In one of our previous posts, we focused on the estimates of real GDP in the USA before and after 1979 and here we extend the US case by several other cases. As mentioned before, we have devoted enough efforts to reveal and recover many trivial cases in our book “mecħanomics. Economic as Classical Mechanics”.

Real GDP (see Concepts and Methods of the U.S. NIPA for details) is the difference between nominal GDP and GDP deflator (price index). The latter is not easy to calculate or even evaluate.  In this post, we showed that it is so much a sophisticated problem that before 1980 there was no practical difference between the cumulative inflation values of the CPI and the GDP deflator in the US, as originally was demonstrated in Figure 1 of the 2011 post. (The cumulative inflation, i.e. the cumulative sum of inflation rates, is different from the price index when differently calibrated in the beginning.)

In this post, we are trying to find significant breaks in the linear dependence between the CPI and dGDP (i.e. between two measured time series) as related to new definitions of inflation. It is important that our observation of a linear relationship between CPI and dGDP in the USA is also valid for other studied developed countries. For our model of the linear and lagged relationship between labor force, unemployment, and inflation, such definitional breaks in economic parameters are equivalent to the breaks in the statistically estimated relationship. In other words, the breaks in the general relationship are not related to the change in the economic behavior of the involved parameters. These breaks are fully artificial and induced by major economic agencies (BLS, BEA, etc.) on their eternal way to perfect definitions of economic variables.

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