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Trend inflation estimates for Thailand from disaggregated data

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  • Manopimoke, Pym
  • Limjaroenrat, Vorada

Abstract

This paper constructs a new trend inflation measure for Thailand based on the multivariate unobserved components model with stochastic volatility and outlier adjustments (MUCSVO) of Stock and Watson (2016). Similar to core inflation, the MUCSVO produces an estimate of trend inflation utilizing information in disaggregated data, but also allows for time-varying weights that depend on the volatility, persistence and comovement of the underlying sectoral inflation series. Based on the empirical results, the majority of sectoral weights show significant time-variation in contrast to their relatively stable expenditure shares. Volatile food and energy sectors that are typically excluded from core inflation measures also turn out to help explain approximately 10 percent of MUCSVO trend inflation rate movements. Compared against other benchmark trend inflation measures, we show that the MUCSVO delivers trend estimates that are smoother, more precise, and are able to forecast average inflation over the 1–3 year horizon more accurately both in-sample and out-of-sample, especially since the year 2000.

Suggested Citation

  • Manopimoke, Pym & Limjaroenrat, Vorada, 2017. "Trend inflation estimates for Thailand from disaggregated data," Economic Modelling, Elsevier, vol. 65(C), pages 75-94.
    • Handle: RePEc:eee:ecmode:v:65:y:2017:i:c:p:75-94
    DOI: 10.1016/j.econmod.2017.05.009
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    More about this item

    Keywords

    Disaggregated prices; Inflation; Outlier adjustment; Stochastic volatility; Time-varying parameters; Trend-cycle decomposition; Unobserved components.;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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