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Decomposing the misery index: A dynamic approach

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  • Ivan K. Cohen
  • Fabrizio Ferretti
  • Bryan McIntosh

Abstract

The misery index (the unweighted sum of unemployment and inflation rates) was probably the first attempt to develop a single statistic to measure the level of a population's economic malaise. In this letter, we develop a dynamic approach to decompose the misery index using two basic relations of modern macroeconomics: the expectations-augmented Phillips curve and Okun's law. Our reformulation of the misery index is closer in spirit to Okun's idea. However, we are able to offer an improved version of the index, mainly based on output and unemployment. Specifically, this new Okun's index measures the level of economic discomfort as a function of three key factors: (1) the misery index in the previous period; (2) the output gap in growth rate terms; and (3) cyclical unemployment. This dynamic approach differs substantially from the standard one utilised to develop the misery index, and allow us to obtain an index with five main interesting features: (1) it focuses on output, unemployment and inflation; (2) it considers only objective variables; (3) it allows a distinction between short-run and long-run phenomena; (4) it places more importance on output and unemployment rather than inflation; and (5) it weights recessions more than expansions.

Suggested Citation

  • Ivan K. Cohen & Fabrizio Ferretti & Bryan McIntosh, 2014. "Decomposing the misery index: A dynamic approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 2(1), pages 1-8, December.
    • Handle: RePEc:taf:oaefxx:doi:10.1080/23322039.2014.991089
    DOI: 10.1080/23322039.2014.991089
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    References listed on IDEAS

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    1. J. M. Golden & Robert Orescovich & David Ostafin, 1990. "Optimality on the Short-Run Phillips Curve: A “Misery Index†Criterion, a Reply," The American Economist, Sage Publications, vol. 34(2), pages 92-92, October.
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    6. J. M. Golden & Robert Orescovich & David Ostafin, 1987. "Optimality on the Short-Run Phillips Curve: A “Misery Index†Criterion, a Note," The American Economist, Sage Publications, vol. 31(2), pages 72-72, October.
    7. Clark Wiseman, 1992. "More on Misery: How Consistent Are Alternative Indices? A Comment," The American Economist, Sage Publications, vol. 36(2), pages 85-88, October.
    8. Bijou Yang, 1992. "Optimality on the Short-Run Phillips Curve Revisited," The American Economist, Sage Publications, vol. 36(2), pages 89-91, October.
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    Cited by:

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    2. Marc Audi & Amjad Ali, 2023. "Public Policy and Economic Misery Nexus: A Comparative Analysis of Developed and Developing World," International Journal of Economics and Financial Issues, Econjournals, vol. 13(3), pages 56-73, May.
    3. Michael König & Adalbert Winkler, 2020. "COVID-19 and Economic Growth: Does Good Government Performance Pay Off?," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 55(4), pages 224-231, July.
    4. Sakiru Adebola Solarin & Luis A. Gil-Alana & Carmen Lafuente, 2020. "Persistence of the Misery Index in African Countries," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 147(3), pages 825-841, February.
    5. Fernando Sánchez López, 2022. "Measuring the Effect of the Misery Index on International Tourist Departures: Empirical Evidence from Mexico," Economies, MDPI, vol. 10(4), pages 1-16, April.
    6. K. Moses Tule & Eunice Ngozi Egbuna & Eme Dada & Godday Uwawunkonye Ebuh, 2017. "A dynamic fragmentation of the misery index in Nigeria," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1336295-133, January.

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