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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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References

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  1. Danny Quah & Shaun Vahey, 1995. "Measuring Core Inflation," Bank of England working papers 31, Bank of England.
  2. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-58, May.
  3. Michael F. Bryan & Stephen G. Cecchetti, 1993. "The consumer price index as a measure of inflation," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 15-24.
  4. Michael F. Bryan & Stephen G. Cecchetti & Rodney L. Wiggins II, 1997. "Efficient inflation estimation," Working Paper 9707, Federal Reserve Bank of Cleveland.
  5. 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.
  6. Hogan, Seamus & Marianne Johnson & Thérèse Laflèche, 2001. "Core Inflation," Technical Reports 89, Bank of Canada.
  7. Smith, Julie K, 2004. "Weighted Median Inflation: Is This Core Inflation?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 253-63, April.
  8. William T. Gavin & Rachel J. Mandal, 2002. "Predicting inflation: food for thought," The Regional Economist, Federal Reserve Bank of St. Louis, issue Jan., pages 4-9.
  9. Stephen G. Cecchetti, 1997. "Measuring short-run inflation for central bankers," Review, Federal Reserve Bank of St. Louis, issue May, pages 143-155.
  10. Pietro Catte & Torsten Sløk, 2005. "Assessing the value of indicators of underlying inflation for monetary policy," OECD Economics Department Working Papers 461, OECD Publishing.
  11. Robalo Marques, Carlos & Duarte Neves, Pedro & Morais Sarmento, Luis, 2003. "Evaluating core inflation indicators," Economic Modelling, Elsevier, vol. 20(4), pages 765-775, July.
  12. Francisco Marcos Rodrigues Figueiredo, 2001. "Evaluating Core Inflation Measures for Brazil," Working Papers Series 14, Central Bank of Brazil, Research Department.
  13. 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 332, Board of Governors of the Federal Reserve System (U.S.).
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Cited by:
  1. Tito Nícias Teixeira da Silva Filho, 2012. "Are Core Inflation Directional Forecasts Informative?," Working Papers Series 266, Central Bank of Brazil, Research Department.

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