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Has core inflation been doing a good job in Brazil?

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  • Da Silva Filho, Tito Nícias Teixeira
  • Figueiredo, Francisco Marcos Rodrigues

Abstract

This paper assesses the performance of the core inflation measures calculated by the Brazilian Central Bank (BCB). The evidence shows that they do not meet some key statistical criteria that a good core inflation should have: unbiasedness and the ability to forecast inflation. That performance stems, to a large extent, from the lack of a well-grounded statistical and economical basis behind them. Three new measures are built and assessed using the same criteria. The evidence shows that their behaviour is more in accordance to what the theory claims. However, they still lack the ability to help forecasting inflation. Hence both the BCB and the market should use core inflation cautiously.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23340.

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Date of creation: Dec 2009
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Handle: RePEc:pra:mprapa:23340

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Keywords: Core inflation; inflation; supply shocks; relative prices; volatility;

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  1. Michael F. Bryan & Stephen G. Cecchetti, 1993. "The Consumer Price Index as a Measure of Inflation," NBER Working Papers, National Bureau of Economic Research, Inc 4505, National Bureau of Economic Research, Inc.
  2. Danny Quah & Danny Quah & Shaun P. Vahey, 1995. "Measuring Core Inflation," CEP Discussion Papers, Centre for Economic Performance, LSE dp0254, Centre for Economic Performance, LSE.
  3. Carlos Robalo Marques & Pedro Duarte Neves & Luís Morais Sarmento, 2000. "Evaluating Core Inflation Indicators," Working Papers, Banco de Portugal, Economics and Research Department w200003, Banco de Portugal, Economics and Research Department.
  4. Francisco Marcos Rodrigues Figueiredo, 2001. "Evaluating Core Inflation Measures for Brazil," Working Papers Series, Central Bank of Brazil, Research Department 14, Central Bank of Brazil, Research Department.
  5. 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.
  6. Stephen G. Cecchetti, 1997. "Measuring short-run inflation for central bankers," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue May, pages 143-155.
  7. Michael F. Bryan & Stephen G. Cecchetti & Rodney L. Wiggins II, 1997. "Efficient Inflation Estimation," NBER Working Papers, National Bureau of Economic Research, Inc 6183, National Bureau of Economic Research, Inc.
  8. Pietro Catte & Torsten Sløk, 2005. "Assessing the value of indicators of underlying inflation for monetary policy," OECD Economics Department Working Papers, OECD Publishing 461, OECD Publishing.
  9. Hogan, Seamus & Marianne Johnson & Thérèse Laflèche, 2001. "Core Inflation," Technical Reports, Bank of Canada 89, Bank of Canada.
  10. Frederic S. Mishkin, 2007. "Headline versus core inflation in the conduct of monetary policy : a speech at the Business Cycles, International Transmission and Macroeconomic Policies Conference, HEC Montreal, Montreal, Canada, Oc," Speech, Board of Governors of the Federal Reserve System (U.S.) 332, Board of Governors of the Federal Reserve System (U.S.).
  11. Quah, Danny, 1995. "Measuring Core Inflation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1153, C.E.P.R. Discussion Papers.
  12. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, Econometric Society, vol. 59(3), pages 817-58, May.
  13. Smith, Julie K, 2004. "Weighted Median Inflation: Is This Core Inflation?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 36(2), pages 253-63, April.
  14. William T. Gavin & Rachel J. Mandal, 2002. "Predicting inflation: food for thought," The Regional Economist, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Jan., pages 4-9.
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Cited by:
  1. Tito Nícias Teixeira da Silva Filho, 2012. "Are Core Inflation Directional Forecasts Informative?," Working Papers Series, Central Bank of Brazil, Research Department 266, Central Bank of Brazil, Research Department.

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