Inflation inex

[Amro Mat]

Hello forum members<

I have panel data for many years, and I need to adjust the Dollar value (inflation) to make it constant to a particular year. I am multiplying the variable by the deflation index. However, in 2009, the deflation index is (-0.4). When I multiply it by the variable, it gives me a negative number.

syntax: replace variable = variablexxx *-0.4 if year == 2009

I am not sure if I am doing it in the right way.

Thank you in advance
A

[Carlo Lazzaro]

Amro:
welcome to this forum:
Shouldn't it be:

replace variable = variablexxx *(1-0.4) if year == 2009

As an aside, are you sure that 0.4 is the correct figure?

[Daniel Feenberg]

I think you have an inflation rate, not a price level. And I think it is a percent, not a fraction. In 2009 there was a slight deflation. It could be that the -.4 is really 4 tenths of a percent reduction in prices from 2008 to 2009. If that is the case you could convert 2008 to 2009 levels by multiplying by (.96=1-.04). If the panel covers more that 2 years, the conversion from even earlier years could be done by a series of multiplications, but I would suggest you get price level series instead of doing that.

Using the current gnp deflator 2021Q1 has a price level of 117 and 2021Q1 is 94. To convert 2009 dollar values to 2021 levels one would multiply by 117/94. The conversion is always a ratio of the "to" year to the "from year". It is never negative. That is quite a bit easier than multiplying a long series of year-to-year inflation rates.
See https://fred.stlouisfed.org/series/GNPDEF

[Nick Cox]

#3 seems in part specific to the United States. #1 is probably asking about the same country, but several countries have dollars as currencies.

[Amro Mat]

Amro:
welcome to this forum:
Shouldn't it be:

replace variable = variablexxx *(1-0.4) if year == 2009

As an aside, are you sure that 0.4 is the correct figure?

Hello Dr. Lazzaro,

Yes, (-0.4) is the average annual inflation rate of 2009.

Would you take a look at https://www.minneapolisfed.org/about...ce-index-1913-

I need to adjust the dollar value from years 2008, 2009 up to 2019 to make it constant with 2019 dollar.

I am multiplying each year (expense) by its corresponding average annual inflation rate. For example; (2008expense)*( 2008 average inflation rate). I repeat this step in every year until 2019.

Please advise if this is the right technique for adjusting the dollar value.

Thank you,

[Amro Mat]

I think you have an inflation rate, not a price level. And I think it is a percent, not a fraction. In 2009 there was a slight deflation. It could be that the -.4 is really 4 tenths of a percent reduction in prices from 2008 to 2009. If that is the case you could convert 2008 to 2009 levels by multiplying by (.96=1-.04). If the panel covers more that 2 years, the conversion from even earlier years could be done by a series of multiplications, but I would suggest you get price level series instead of doing that.

Using the current gnp deflator 2021Q1 has a price level of 117 and 2021Q1 is 94. To convert 2009 dollar values to 2021 levels one would multiply by 117/94. The conversion is always a ratio of the "to" year to the "from year". It is never negative. That is quite a bit easier than multiplying a long series of year-to-year inflation rates.
See https://fred.stlouisfed.org/series/GNPDEF

Hello Dr. Feenberg,

You are right, it is a percent. The data I am working on range from 2008 to 2019. As I understood from your reply, I need to multiply each year (expense) by the average annual inflation rate.

I am utilizing this table:
https://www.minneapolisfed.org/about...ce-index-1913-

I appreciate it.