A Rant About Base Effects — Brian Romanchuk

I ran across some silly commentary about inflation that did not take into account base effects. I just want to explain how to avoid this problem using elementary results from systems theory. The short version is to use a first order low pass filter, which economists vaguely label an "exponential moving average" (or something like that). Since it was used to generate "adaptive expectations," I strangely labelled it "adaptive average" in the above figure.

Bond Economics
A Rant About Base Effects
Brian Romanchuk