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From: Allin Cottrell <cottrell@wfu.edu>
To: Gretl list <gretl-users@lists.wfu.edu>
Sent: Saturday, April 11, 2009 4:15:01 AM
Subject: Re: [Gretl-users] Correcting for inflation

On Fri, 10 Apr 2009, Raz Lev wrote:

> I am trying to convert data to account for inflation.

> I have an excel (or variable, whichever is better) with the
> cumulative inflation for every quarter between 1980 and 1990 (my
> period of interest) and in gretl data about salaries that
> contain, amongst else, the wage, and the year and the quarter in
> which the sample was taken.

The usual precedure for deflating a nominal variable is simply to
divide by a price index (with a possible scale factor to equate
the real and nominal values in a chosen base period).  For
example, suppose I have nominal wage bill data and data on the
CPI:

            wages          CPI
1983:1      1629.5      98.0000
1983:2      1661.8      99.1333
1983:3      1699.0    100.1000
1983:4      1748.1    101.1000
1984:1      1794.0    102.5333
1984:2      1837.9    103.5000
1984:3      1877.3    104.4000
1984:4      1911.1    105.3000

Then I might choose a base period -- say, 1993:3, and do

  genr realwages = wages * CPI[1983:3] / CPI

Allin
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