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Re: st: adjust to the inflation level


From   Daniel Feenberg <feenberg@nber.org>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: adjust to the inflation level
Date   Fri, 4 Feb 2011 09:32:29 -0500 (EST)


On Fri, 4 Feb 2011, Tharshini Thangavelu wrote:

Dear statlist,

I have a question concerning how to adjust my variable "return on asset"
(RoA) to inflation using consumer price index (cpi).

My dataset is a time serie, I have generated id and told to STATA that it
deals with a time serie. The variable RoA goes from year 1998-2010 a cross
countires and companies. The cpi goes from year 1998-2010 with year 2006 as
the base year.


year        RoA          cpi     id   country
98         11.114         87     1     sweden
99         4.902          88     1     sweden
00         4.669          90     1     sweden
01         6.603           .     1     sweden
02        -.005           92     1     sweden
03        3.064           94     1     sweden
04        -25.963         95     1     sweden
05         25.699         97     1     sweden
06           0            100    1     sweden
07           0            102    1     sweden
08           0            104    1     sweden
09           0            108    1     sweden

My question is the following: I would like to adjust the RoA to the year
2009 price level. How do I do this?

Lagged cpi is indicated by cpi[_n-1]. So real RoA is

  gen real_roa = roa-100*(cpi-cpi[_n-1])/cpi[_n-1]

This assumes the CPI is measured at end of year.

The base year is irrelevant - the real RoA is just the nominal RoA less the rate of inflation. Not that changing the base year would move cpi and cpi[_n-1] in the same proportion, and would not affect real_roa.

Note that "help lag" doesn't produce any result.

Daniel Feenberg

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