“When US oil prices quadrupled following the OPEC oil embargo…Burns argued that, since this had nothing to do with monetary policy, the Fed should exclude oil and energy-related products…from the consumer price index.”
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theory has a point here… there is a disingenuous game of redefinition to keep the tautology of ‘transitory inflation’ a tautology. Leaving out outliers or switching to median from mean price is just bad faith.
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The epistemic problem though is that this theorizing tries to be at once normative and descriptive. It tries to set the rules of a management game AND describe reality. So bad faith aside we do have an actual problem here.
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Shifting from mean to median of a distribution to define a concept may be a valid technical response to keep a model meaningful in face of changing phenomenology. For eg maybe a non-fat-tail distribution turned fat-tail, or cost disease or whatever. Scientists do this routinely.
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But gotta flag the rules of the associated game as now being short historical justification and flagged for potential change to keep intent of laws intact. Or have the debate to shift intent.
“CPI may still work as a measure, but let’s keep an eye on it and change if needed.”
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The problem here is institutions kinda retconning new phenomenology into a post-hoc defense of a model’s validity.
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It sounds like “of course inflation needs to account for effects of space aliens landing, but don’t worry, inflation theory covers that case. We’ll just change mean to median, and have the Area 51 economist consult for the Fed on secondment while we make a few tweaks.”
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