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Good stuff as usual, Prof. Especially for the amateur retail investor such as myself as I really appreciate getting a balanced perspective. But do you really buy the claim that lower US petroleum consumption is driven by better gasoline mileage on private vehicles? Should we be satisfied with an analysis unless it considers factors like the distribution by age (eg how many actually have newer better mpg) of vehicles on the road, trending of total vehicle miles traveled, conversion of vehicles to natural gas and electricity, changes in shipping patterns (like doubling up with tandem trailers for example to reduce the total shipping miles, or alternate shipping such rail), and the impact of changes in commercial and industrial consumption? How do we know the relative contribution of gas mileage unless these other factors have been quantified? If it turns out that they are important AND correlated to economic factors then who knows, this item might end up in the "bad" column instead!
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Great stuff as usual Prof. But there is one point that just is not clear yet especially to a layman such as myself. How does the model justify a treatment in which an increase of say 100 basis points in unemployment is precisely equivalent to a 100 BP decrease in inflation? Or to put it another way how can we subtract unemployment from inflation and have a meaningful number as a result? Is there a hidden rate factor X that just happens to have the value of 1 in units of (percent unemployment/percent inflation)?
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Jan 13, 2013