China's Impact

[Aditya Chitral]

While going through this article about inflation claims and the fact we are studying correlations and principal component analysis, I was wondering if one could precisely estimate the effect of china or of any country on world economy.

How much the inflation in developed countries like US could be attributed to developing countries like China and India and what things to gauge to estimate it.

I would like someone to throw light on it.

 

[Muting]

I would doubt whether you can do it in that way since PCA gives you numbers rather than qualitative interpretation. You might see, in the yield curve PCA movement, can be categorized into parallel, steepen/flatten and humped. But that is because we can interpret the meaning from the pattern of numbers. But it is not very meaningful to do the inflation thing by PCA if they don't have strong collinearity. What you are talking about is more similar to doing multi-variable regression.

 

[Aditya Chitral]

Thanks for your input

 

[alain]

use factor analysis... we do something similar at work. It's all statistical regression.

 

[cstassen]

using regular regressions on inflation is dangerous me thinks. hope you are carefull (guess you are)

 

[alain]

You have to be careful every time you try to analyze macroeconomic factors for predictive purposes. Another person in my group is trying to use Neural networks for this purpose as well. This is all black magic... but we'll see.