Wavelet-based Core Inflation Measures: Evidence from Peru
AbstractUnder inflation targeting and other related monetary policy regimes, the identification of non-transitory in ation and forecasts about future inflation constitute key ingredients for monetary policy decisions. In practice, central banks perform these tasks using so-called "core inflation measures". In this paper we construct alternative core inflation measures using wavelet functions and multiresolution analysis (MRA), and then evaluate their relevance for monetary policy. The construction of wavelet-based core inflation measures (WIMs) is relatively new in the literature and their assessment has not been addressed formally, this paper being the first attempt to perform both tasks for the case of Peru. Another main contribution of this paper is that it proposes a VAR-based long-run criterion as an alternative criteria for evaluating core inflation measures. Evidence from Peru shows that WIMs are superior to official core inflation in terms of both the proposed criterion and forecast-based criteria.
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Bibliographic InfoPaper provided by Banco Central de Reserva del Perú in its series Working Papers with number 2011-019.
Date of creation: Dec 2011
Date of revision:
Core infl ation; wavelets; forecast; structural VAR;
Find related papers by JEL classification:
- C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-03 (All new papers)
- NEP-CBA-2012-01-03 (Central Banking)
- NEP-FOR-2012-01-03 (Forecasting)
- NEP-MON-2012-01-03 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lahura Serrano, Erick W., 2004. "La relación dinero-producto, brecha del producto e inflación subyacente: algunas aplicaciones de las funciones Wavelets," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 11.
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- Baqaee, David, 2010.
"Using wavelets to measure core inflation: The case of New Zealand,"
The North American Journal of Economics and Finance,
Elsevier, vol. 21(3), pages 241-255, December.
- David Baqaee, 2009. "Using wavelets to measure core inflation: the case in New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2009/05, Reserve Bank of New Zealand.
- Ribba, Antonio, 2003. "Permanent-transitory decompositions and traditional measures of core inflation," Economics Letters, Elsevier, vol. 81(1), pages 109-116, October.
- Christoph Schleicher, 2002. "An Introduction to Wavelets for Economists," Working Papers 02-3, Bank of Canada.
- 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.
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