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Using wavelets to measure core inflation: the case in New Zealand

This paper uses wavelets to develop a core inflation measure for inflation targeting central banks. The analysis is applied to the case of New Zealand – the country with the longest history of explicit inflation targeting. We compare the performance of our proposed measure against some popular alternatives. Our measure does well at identifying a reliable medium-term trend in inflation. It also has comparable forecasting performance to standard benchmarks.

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File URL: http://rbnz.govt.nz/research_and_publications/discussion_papers/2009/dp09_05.pdf
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Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2009/05.

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Length: 23p
Date of creation: May 2009
Date of revision:
Handle: RePEc:nzb:nzbdps:2009/05
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  1. Domenico Giannone & Troy Matheson, 2007. "A new core inflation indicator for New Zealand," ULB Institutional Repository 2013/6407, ULB -- Universite Libre de Bruxelles.
  2. 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.
  3. Stephen G. Cecchetti, 1996. "Measuring Short-Run Inflation for Central Bankers," NBER Working Papers 5786, National Bureau of Economic Research, Inc.
  4. Mick Silver, 2007. "Core Inflation: Measurement and Statistical Issues in Choosing Among Alternative Measures," IMF Staff Papers, Palgrave Macmillan, vol. 54(1), pages 163-190, May.
  5. Kevin Dowd & John Cotter, 2011. "U.S. Core Inflation: A Wavelet Analysis," Working Papers 200617, Geary Institute, University College Dublin.
  6. Mark A. Wynne, 2008. "Core inflation: a review of some conceptual issues," Review, Federal Reserve Bank of St. Louis, issue May, pages 205-228.
  7. Carlos Robalo Marques & Pedro Duarte Neves & Afonso Gonçalves da Silva, 2000. "Why Should Central Banks Avoid the Use of the Underlying Inflation Indicator?," Working Papers w200005, Banco de Portugal, Economics and Research Department.
  8. Thérèse Laflèche, 1997. "Statistical measures of the trend rate of inflation," Bank of Canada Review, Bank of Canada, vol. 1997(Autumn), pages 29-47.
  9. Ramsey James B., 2002. "Wavelets in Economics and Finance: Past and Future," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 6(3), pages 1-29, November.
  10. Scott Roger, 1998. "Core inflation: concepts, uses and measurement," Reserve Bank of New Zealand Discussion Paper Series G98/9, Reserve Bank of New Zealand.
  11. Alexandra Heath & Ivan Roberts & Tim Bulman, 2004. "Inflation in Australia: Measurement and Modelling," RBA Annual Conference Volume, in: Christopher Kent & Simon Guttmann (ed.), The Future of Inflation Targeting Reserve Bank of Australia.
  12. Christoph Schleicher, 2002. "An Introduction to Wavelets for Economists," Working Papers 02-3, Bank of Canada.
  13. Jamie Armour, 2006. "An Evaluation of Core Inflation Measures," Working Papers 06-10, Bank of Canada.
  14. Ramsey, J.B., 2002. "Wavelets in Economics and Finance: Past and Future," Working Papers 02-02, C.V. Starr Center for Applied Economics, New York University.
  15. 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.
  16. Michael F. Bryan & Stephen G. Cecchetti & Rodney L. Wiggins II, 1997. "Efficient inflation estimation," Working Paper 9707, Federal Reserve Bank of Cleveland.
  17. Stuart Barber & Guy P. Nason, 2004. "Real nonparametric regression using complex wavelets," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 66(4), pages 927-939.
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