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A Volatility and Persistence-Based Core Inflation

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  • Tito Nícias Teixeira da Silva Filho
  • Francisco Marcos Rodrigues Figueiredo

Abstract

Intuitively core inflation is understood as a measure of inflation where noisy price movements are avoided. This is typically achieved by either excluding or downplaying the importance of the most volatile items. However, some of those items show high persistence, and one certainly does not want to disregard persistent price changes. The non equivalence between volatility and (the lack of) persistence implies that when one excludes volatile items relevant information is likely to be discarded. Therefore we propose a new type of core inflation measure, one that takes simultaneously into account both volatility and persistence. The evidence shows that such measures far outperform those based on either volatility or persistence

Suggested Citation

  • Tito Nícias Teixeira da Silva Filho & Francisco Marcos Rodrigues Figueiredo, 2014. "A Volatility and Persistence-Based Core Inflation," Working Papers Series 367, Central Bank of Brazil, Research Department.
  • Handle: RePEc:bcb:wpaper:367
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    File URL: https://www.bcb.gov.br/pec/wps/ingl/wps367.pdf
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    References listed on IDEAS

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    1. Michael F. Bryan & Stephen G. Cecchetti, 1993. "The consumer price index as a measure of inflation," Economic Review, Federal Reserve Bank of Cleveland, vol. 29(Q IV), pages 15-24.
    2. da Silva Filho, Tito Nícias Teixeira & Figueiredo, Francisco Marcos Rodrigues, 2011. "Has Core Inflation Been Doing a Good Job in Brazil?," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 65(2), June.
    3. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-858, May.
    4. repec:fgv:epgrbe:v:65:n:2:a:5 is not listed on IDEAS
    5. Ian Babetskii & Fabrizio Coricelli & Roman Horvath, 2007. "Measuring and Explaining Inflation Persistence: Disaggregate Evidence on the Czech Republic," Working Papers 2007/1, Czech National Bank.
    6. Tito Nícias Teixeira da Silva Filho, 2008. "Searching for the Natural Rate of Unemployment in a Large Relative Price Shocks' Economy: the Brazilian Case," Working Papers Series 163, Central Bank of Brazil, Research Department.
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    Cited by:

    1. Emre Alper & Niko A Hobdari & Ali Uppal, 2016. "Food Inflation in Sub-Saharan Africa; Causes and Policy Implications," IMF Working Papers 16/247, International Monetary Fund.

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