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A Volatility and Persistence-Based Core Inflation

Author

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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. The latter have been advocated in the literature in recent years.

Suggested Citation

  • Tito Nícias Teixeira da Silva Filho & Francisco Marcos Rodrigues Figueiredo, 2015. "A Volatility and Persistence-Based Core Inflation," IMF Working Papers 15/8, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:15/8
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-858, May.
    4. 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.
    5. 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.
    6. repec:fgv:epgrbe:v:65:n:2:a:5 is not listed on IDEAS
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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.
    2. Vicente da Gama Machado & Raquel Nadal & Fernando Ryu Ramos Kawaoka, "undated". "A Data-Rich Measure of Underlying Inflation for Brazil," Working Papers Series 516, Central Bank of Brazil, Research Department.

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