A Network Analysis of the United Kingdom's Consumer Price Index

Computational Economics, 2015

22 Pages Posted: 8 Dec 2016

See all articles by Georgios Sarantitis

Georgios Sarantitis

Democritus University of Thrace - Department of Economics

Theophilos Papadimitriou

Department of Economics, Democritus University of Thrace

Periklis Gogas

Democritus University of Thrace - Department of Economics

Date Written: September 16, 2015

Abstract

In this paper we model the United Kingdom’s Consumer Price Index as a complex network and we apply clustering and optimization techniques to study the network evolution through time. By doing this, we provide a dynamic, multi-level analysis of the mechanism that drives inflation in the U.K. We find that the CPI-classes’ network exhibits an evolving topology through time which depends substantially on the prevailing economic conditions in the U.K. We identify non-overlapping communities of these U.K. CPI classes and we observe that they do not correspond to the actual categories they belong into; a finding that suggests that diverse forces are driving the inter-relations of the CPI classes which are stronger between categories rather than within them. Finally, we present a reduced version of the U.K. CPI that fulfills the core inflation measure criteria and can possibly be used as an appropriate measure of the underlying inflation in the U.K. Since this new measure makes use of only 14 out of the 85 U.K. CPI classes, it can be used to complement the Bank of England’s arsenal of core inflation measures without the need for further resource allocation.

Keywords: Network Analysis, Threshold-Minimum Dominating Set, community detection, core inflation, consumer price index

JEL Classification: E31, E52, C61

Suggested Citation

Sarantitis, Georgios and Papadimitriou, Theophilos and Gogas, Periklis, A Network Analysis of the United Kingdom's Consumer Price Index (September 16, 2015). Computational Economics, 2015. Available at SSRN: https://ssrn.com/abstract=2882172 or http://dx.doi.org/10.2139/ssrn.2882172

Georgios Sarantitis (Contact Author)

Democritus University of Thrace - Department of Economics ( email )

Komotini
Greece

Theophilos Papadimitriou

Department of Economics, Democritus University of Thrace ( email )

University Campus
Komotini, 69100
Greece

HOME PAGE: http://econ.duth.gr/author/papadimi/

Periklis Gogas

Democritus University of Thrace - Department of Economics ( email )

Komotini, 69100
Greece

HOME PAGE: http://www.econ.duth.gr/personel/dep/gkogkas/index.en.shtml

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