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Using wavelets to measure core inflation: The case of New Zealand

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  • Baqaee, David

Abstract

This paper uses wavelets to develop a core inflation measure for inflation targeting central banks. The analysis is applied to the case of New Zealand - the country with the longest history of explicit inflation targeting. We compare the performance of our proposed measure against some popular alternatives. Our measure does well at identifying a reliable medium-term trend in inflation. It also has comparable forecasting performance to standard benchmarks.

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File URL: http://www.sciencedirect.com/science/article/B6W5T-50KVSY1-1/2/59db174f281a9473bad7dee12845989f
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Bibliographic Info

Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 21 (2010)
Issue (Month): 3 (December)
Pages: 241-255

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Handle: RePEc:eee:ecofin:v:21:y:2010:i:3:p:241-255

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Web page: http://www.elsevier.com/locate/inca/620163

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Keywords: Core Inflation Monetary policy Central banks Time series Wavelets;

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References

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  1. Mark A. Wynne, 1999. "Core inflation: a review of some conceptual issues," Working Paper Series 5, European Central Bank.
  2. Jamie Armour, 2006. "An Evaluation of Core Inflation Measures," Working Papers 06-10, Bank of Canada.
  3. Michael F. Bryan & Stephen G. Cecchetti & Rodney L. Wiggins II, 1997. "Efficient Inflation Estimation," NBER Working Papers 6183, National Bureau of Economic Research, Inc.
  4. Christoph Schleicher, 2002. "An Introduction to Wavelets for Economists," Working Papers 02-3, Bank of Canada.
  5. kevin dowd & john cotter, 2011. "U.S. Core Inflation: A Wavelet Analysis," Papers 1103.5659, arXiv.org.
  6. Domenico Giannone & Troy D. Matheson, 2007. "A New Core Inflation Indicator for New Zealand," International Journal of Central Banking, International Journal of Central Banking, vol. 3(4), pages 145-180, December.
  7. Scott Roger, 1998. "Core inflation: concepts, uses and measurement," Reserve Bank of New Zealand Discussion Paper Series G98/9, Reserve Bank of New Zealand.
  8. Marques, Carlos Robalo & Neves, Pedro Duarte & da Silva, Afonso Goncalves, 2002. "Why should Central Banks avoid the use of the underlying inflation indicator?," Economics Letters, Elsevier, vol. 75(1), pages 17-23, March.
  9. Stephen G. Cecchetti, 1996. "Measuring Short-Run Inflation for Central Bankers," NBER Working Papers 5786, National Bureau of Economic Research, Inc.
  10. Robert Rich & Charles Steindel, 2005. "A review of core inflation and an evaluation of its measures," Staff Reports 236, Federal Reserve Bank of New York.
  11. Timothy Cogley, 1998. "A simple adaptive measure of core inflation," Working Papers in Applied Economic Theory and Econometrics 98-06, Federal Reserve Bank of San Francisco.
  12. James B. Ramsey, 2002. "Wavelets in Economics and Finance: Past and Future," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 6(3), pages 1.
  13. Thérèse Laflèche, 1997. "Statistical measures of the trend rate of inflation," Bank of Canada Review, Bank of Canada, vol. 1997(Autumn), pages 29-47.
  14. Mick Silver, 2007. "Core Inflation: Measurement and Statistical Issues in Choosing Among Alternative Measures," IMF Staff Papers, Palgrave Macmillan, vol. 54(1), pages 163-190, May.
  15. Stuart Barber & Guy P. Nason, 2004. "Real nonparametric regression using complex wavelets," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 66(4), pages 927-939.
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Citations

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Cited by:
  1. Lahura, Erick & Vega, Marco, 2011. "Wavelet-based Core Inflation Measures: Evidence from Peru," Working Papers 2011-019, Banco Central de Reserva del Perú.
  2. Armas, Adrián & Vallejos , Lucy & Vega, Marco, 2011. "Indicadores tendenciales de inflación y su relevancia como variables indicativas de política monetaria," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 20, pages 27-56.
  3. Erick Lahura & Marco Vega, 2011. "Evaluation of Wavelet-based Core Inflation Measures: Evidence from Peru," Documentos de Trabajo 2011-320, Departamento de Economía - Pontificia Universidad Católica del Perú.

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