Separation of base and momentum effect

Question

I am calculating YoY change in macroeconomic variables (inflation, industrial production etc.). However this growth is distorted by low base of last year. Currently I am using 2 year cagr to adjust for the base effect. Is there a better statistical method to separate the base effect and momentum.

Guy Louzon · Answer

For a "stable" base, you can use any average of previous years that "makes sense", that is an average with minimal variance and give an explicit explanation
If the last year doesn't deviate from that average then it is unnecessary

To demonstrate the momentum effect you can use a moving average, in that case there is no meaning for the base and edge cases are normalized

Separation of base and momentum effect

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