EPI is a macro-indicator to measure state, national, and global economic performance. The EPI examines the primary segments of an economy – households, firms and government – by incorporating four variables:
- inflation;
- unemployment;
- budget deficits;
- GDP growth;
IT'S REALLY AS EASY
AS THAT!
This way, we can easily refer to an economy's performance with a designated letter grade, making it easy for everyone to quickly grasp how well or how poorly the economy did in a given period.
2014
To determine the Index score for 2014, we would begin with 100%, then subtract the inflation rate of 1.6%, subtract the unemployment rate of 6.2%, subtract the budget deficit of 4.1%, and then add the GDP growth of 2.4%:
To determine the Index score for 2014, we would begin with 100%, then subtract the inflation rate of 1.6%, subtract the unemployment rate of 6.2%, subtract the budget deficit of 4.1%, and then add the GDP growth of 2.4%:
100%
− 1.6% inflation
− 6.2% unemployment
− 4.1% budget deficit
+ 2.4% GDP
= 90.5%
or a B- grade.
− 1.6% inflation
− 6.2% unemployment
− 4.1% budget deficit
+ 2.4% GDP
= 90.5%
or a B- grade.
The value of 90.5% has an important meaning. It indicates that economy was about more than nine percentage points away from “perfect performance.” According to our Index, in 2014 the principal factors that depressed a better economic performance were the unemployment rate and the budget deficit.
2015
To determine the Index score for 2015, we would begin with 100%, then subtract the inflation rate of 0.1%, subtract the unemployment rate of 5.3%, subtract the budget deficit of 3.7%, and then add the GDP growth of 2.4%:
To determine the Index score for 2015, we would begin with 100%, then subtract the inflation rate of 0.1%, subtract the unemployment rate of 5.3%, subtract the budget deficit of 3.7%, and then add the GDP growth of 2.4%:
100%
− 0.1% inflation
− 5.3% unemployment
− 3.7% budget deficit
+ 2.4% GDP
= 93.3%
or a B grade.
− 0.1% inflation
− 5.3% unemployment
− 3.7% budget deficit
+ 2.4% GDP
= 93.3%
or a B grade.
From 2014 to 2015, inflation fell almost to zero, the unemployment rate got marginally better, the budget deficit slightly diminished, and GDP improved. Subsequently, the EPI rose. So we can see that, according to the EPI, 2015 was a better year than 2014. Instinctively, most people would agree with this.
THE RESULTS OF OUR FOUR-YEAR
RESEARCH SHOW THAT:
RESEARCH SHOW THAT:
The EPI tracks the major events in US history, from wars and stagflation to booms and periods of prosperity. Out of all economic indexes, only the EPI can accurately compare the performance of the US economy across time. | |
The EPI catches almost all official US recessions, from the Great Depression to the dot-com bubble, falling substantially during these periods. Furthermore, the EPI is the only index that allows comparing the severity of recessions in a transparent way. | |
The EPI reflects the same economic behavior as the stock markets. Since the EPI reflects the fundamentals of the economy just like the financial markets do, it follows that the dynamics of the EPI should rise and fall in tandem with the market. |
SEE OUR WORKING PAPER PUBLISHED
AT THE IMF
AT THE IMF
Title: The Economic Performance Index (EPI): an Intuitive Indicator for Assessing a Country’s Economic Performance Dynamics in an Historical Perspective
Authors: Vadim Khramov; John Ridings Lee
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Authors: Vadim Khramov; John Ridings Lee
Visit Website