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Measuring the eurozone economy with the ABC EZ Misery Index

A research by Stefano Fugazzi on behalf of ABC Economics – The Misery Index is a measure of economic well-being for a specified economy. An increasing index means a worsening economic climate for the economy in question, and vice versa.

The author of this paper was one of the first commentators to monitor the Misery Index in Italy (please refer to Stefano Fugazzi’s paper published in November 2012: “Italia, l’austerità mette le ali al Misery Index”) even before Confcommercio began to track it (March 2013,“Confcommercio introduces the Misery index, will be used to measure the new poverty crisis”).

ABC Economics subsequently updated the Misery Index metric in May 2014 (based on the Q1 2014 data: “Italia, il boom del Misery Index negli anni post introduzione dell’euro”) and in January 2015 (based on Q4 2014 data: “ABC Economics Research: il Misery Index italiano dal 2002”).

Here the author takes the opportunity to refine and update his previous iterations of the Eurozone Misery Index, an analysis originally detailed in Stefano Fugazzi’s ABC Economipedia, a book now available both in paperback and eBook formats.

The dataset, which encompasses the key economic metrics from all 19 Eurozone countries, is sourced from the International Monetary Fund (IMF) portal.

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Misery Index (original formulation)

The starting point is the original formulation of the indicator which is found by adding unemployment rate to inflation rate. It is assumed that both a higher rate of unemployment and a worsening of inflation create economic and social costs for a country. For the purpose of this exercise we take the annual average inflation rate rather than the year-end rate.

Standard Misery Index = unemployment rate + inflation rate

Growth Misery Index

In 1999 Harvard Economist Robert Barro created his own version of the index calculated as the sum of the inflation, unemployment rates and the central bank’s interest rate plus (minus) the shortfall (surplus) between the actual and trend rate of Gross Domestic Product (GDP) growth (year-on-year, YOY, variation) i.e. adding-on negative balances and deducting positive variations in GDP. Considering that there is no interest rate differentiation within the eurozone, being it constant across the entire sample, for the purpose of this exercise we decided to ignore interest rates.

Growth Misery Index = unemployment rate + inflation rate + (interest rate – interest rate) + YOY GDP variation

Super Misery Index

A subsequent iteration of Misery Index is to revise the Growth Misery Index to take into account government net lending / borrowing (expressed as a percentage of GDP), adding-on contractions and deducting positive variations.

Super Misery Index = unemployment rate + inflation rate + variation in GDP + government net lending / borrowing

ABC EZ Misery Index

One of the most controversial parameters introduced by the Maastricht Treaty was to fix the maximum deficit/GDP level to 3%. Our own iteration of the Misery Index includes only percentage amounts in excess of the target of 3% (“deficit above 3% threshold“) rather than considering the actual net lending/borrowing position (in percentage terms), that is:

If deficit > 3%: add-on variance 

If deficit ≤ 3% deficit: exclude from calculation 

The primary objective of the European Central Bank’s (ECB) monetary policy is to maintain price stability. The ECB aims at inflation rates of below, but close to, 2% over the medium term. ABC Economics considered appropriate to include within the ABC EZ Misery Index the spread between a given country’s inflation rate and the ECB target, that is the “ECB inflation rate gap” calculated as:

If inflation> 2%: exclude 

If inflation ≤ 2%: add-on (Country A versus ECB target) variance to the ABC EZ Misery Index

Given the above considerations on deficits and inflation within the single currency area, the ABC EZ Misery Index will be articulated as follows:

ABC EZ Misery Index = unemployment rate + ECB inflation rate gap + variation in GDP + deficit above 3% threshold


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EZ 03EZ 04EZ 05EZ 06EZ 07EZ 08EZ 09EZ 10



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