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U.S. Core Inflation: A Wavelet Analysis


  • kevin dowd
  • john cotter


This paper proposes the use of wavelet methods to estimate U.S. core inflation. It explains wavelet methods and suggests they are ideally suited to this task. Comparisons are made with traditional CPI-based and regression-based measures for their performance in following trend inflation and predicting future inflation. Results suggest that wavelet-based measures perform better, and sometimes much better, than the traditional approaches. These results suggest that wavelet methods are a promising avenue for future research on core inflation.

Suggested Citation

  • kevin dowd & john cotter, 2011. "U.S. Core Inflation: A Wavelet Analysis," Papers 1103.5659,
  • Handle: RePEc:arx:papers:1103.5659

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    References listed on IDEAS

    1. Mark A. Wynne, 2008. "Core inflation: a review of some conceptual issues," Review, Federal Reserve Bank of St. Louis, issue May, pages 205-228.
    2. Max Stevenson, 2001. "Filtering and Forecasting Spot Electricity Prices in the Increasingly Deregulated Australian Electricity Market," Research Paper Series 63, Quantitative Finance Research Centre, University of Technology, Sydney.
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    14. Vega, Juan Luis & Wynne, Mark A., 2001. "An evaluation of some measures of core inflation for the euro area," Working Paper Series 0053, European Central Bank.
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    16. Robalo Marques, Carlos & Duarte Neves, Pedro & Morais Sarmento, Luis, 2003. "Evaluating core inflation indicators," Economic Modelling, Elsevier, vol. 20(4), pages 765-775, July.
    17. Stephen G. Cecchetti, 1997. "Measuring short-run inflation for central bankers," Review, Federal Reserve Bank of St. Louis, issue May, pages 143-155.
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    19. Cogley, Timothy, 2002. "A Simple Adaptive Measure of Core Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 94-113, February.
    20. Smith, Julie K., 2012. "PCE inflation and core inflation," Working Papers 1203, Federal Reserve Bank of Dallas.
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    Cited by:

    1. Bampinas, Georgios & Panagiotidis, Theodore, 2015. "Are gold and silver a hedge against inflation? A two century perspective," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 267-276.
    2. Andersson, Fredrik N. G., 2008. "Core Inflation - Why the Federal Reserve Got it Wrong," Working Papers 2008:19, Lund University, Department of Economics.
    3. 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.
    4. Erick Lahura & Marco Vega, 2011. "Evaluation of Wavelet-based Core Inflation Measures: Evidence from Peru," Documentos de Trabajo / Working Papers 2011-320, Departamento de Economía - Pontificia Universidad Católica del Perú.
    5. Hassan Farazmand & Amin Mansouri & Morteza Afghah, 2014. "Choosing the best type of wavelet: Case study-business cycle in Iran," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 4(5), pages 293-314, May.
    6. Lahura, Erick & Vega, Marco, 2011. "Wavelet-based Core Inflation Measures: Evidence from Peru," Working Papers 2011-019, Banco Central de Reserva del Perú.
    7. Jiang, Chun & Chang, Tsangyao & Li, Xiao-Lin, 2015. "Money growth and inflation in China: New evidence from a wavelet analysis," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 249-261.

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    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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