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Using wavelets to measure core inflation: the case in New Zealand

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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://rbnz.govt.nz/research_and_publications/discussion_papers/2009/dp09_05.pdf
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Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2009/05.

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Length: 23p
Date of creation: May 2009
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Handle: RePEc:nzb:nzbdps:2009/05

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  1. Robert Rich & Charles Steindel, 2005. "A review of core inflation and an evaluation of its measures," Staff Reports, Federal Reserve Bank of New York 236, Federal Reserve Bank of New York.
  2. Dowd, Kevin & Cotter, John & Loh, Lixia, 2011. "U.S. Core Inflation: A Wavelet Analysis," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 15(04), pages 513-536, September.
  3. Stephen G. Cecchetti, 1996. "Measuring Short-Run Inflation for Central Bankers," NBER Working Papers 5786, National Bureau of Economic Research, Inc.
  4. Domenico Giannone & Troy D. Matheson, 2007. "A New Core Inflation Indicator for New Zealand," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 3(4), pages 145-180, December.
  5. Michael F. Bryan & Stephen G. Cecchetti & Rodney L. Wiggins II, 1997. "Efficient inflation estimation," Working Paper, Federal Reserve Bank of Cleveland 9707, Federal Reserve Bank of Cleveland.
  6. Mark A. Wynne, 1999. "Core inflation: a review of some conceptual issues," Working Papers, Federal Reserve Bank of Dallas 9903, Federal Reserve Bank of Dallas.
  7. Thérèse Laflèche, 1997. "Statistical measures of the trend rate of inflation," Bank of Canada Review, Bank of Canada, Bank of Canada, vol. 1997(Autumn), pages 29-47.
  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, Elsevier, vol. 75(1), pages 17-23, March.
  9. Jamie Armour, 2006. "An Evaluation of Core Inflation Measures," Working Papers, Bank of Canada 06-10, Bank of Canada.
  10. Ramsey James B., 2002. "Wavelets in Economics and Finance: Past and Future," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, De Gruyter, vol. 6(3), pages 1-29, November.
  11. Mick Silver, 2007. "Core Inflation: Measurement and Statistical Issues in Choosing Among Alternative Measures," IMF Staff Papers, Palgrave Macmillan, Palgrave Macmillan, vol. 54(1), pages 163-190, May.
  12. Christoph Schleicher, 2002. "An Introduction to Wavelets for Economists," Working Papers, Bank of Canada 02-3, Bank of Canada.
  13. Scott Roger, 1998. "Core inflation: concepts, uses and measurement," Reserve Bank of New Zealand Discussion Paper Series, Reserve Bank of New Zealand G98/9, Reserve Bank of New Zealand.
  14. Stuart Barber & Guy P. Nason, 2004. "Real nonparametric regression using complex wavelets," Journal of the Royal Statistical Society Series B, Royal Statistical Society, Royal Statistical Society, vol. 66(4), pages 927-939.
  15. Cogley, Timothy, 2002. "A Simple Adaptive Measure of Core Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 34(1), pages 94-113, February.
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Cited by:
  1. 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, Banco Central de Reserva del Perú, issue 20, pages 27-56.
  2. Erick Lahura & Marco Vega, 2011. "Evaluation of Wavelet-based Core Inflation Measures: Evidence from Peru," Documentos de Trabajo, Departamento de Economía - Pontificia Universidad Católica del Perú 2011-320, Departamento de Economía - Pontificia Universidad Católica del Perú.
  3. Lahura, Erick & Vega, Marco, 2011. "Wavelet-based Core Inflation Measures: Evidence from Peru," Working Papers, Banco Central de Reserva del Perú 2011-019, Banco Central de Reserva del Perú.

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