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Towards a Measure of Core Inflation using Singular Spectrum Analysis

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  • Franz Ruch
  • Dirk Bester

Abstract

This paper constructs a number of possible core measures of annual inflation using Singular Spectrum Analysis (SSA). Annual inflation is decomposed into its trend, oscillating and noise components in order to develop an understanding of the trend and cyclicality in South African headline inflation. Five cyclical components are identified with differing amplitude and frequency. The trend and cyclical components of inflation are found to be a good approximation of core inflation, the inertial part of inflation. These core measures are compared to other candidate core measures based on the properties of a good core inflation measure. Generally, the SSA measures outperform commonly use measures of core inflation.

Suggested Citation

  • Franz Ruch & Dirk Bester, 2011. "Towards a Measure of Core Inflation using Singular Spectrum Analysis," Working Papers 256, Economic Research Southern Africa.
  • Handle: RePEc:rza:wpaper:256
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    1. Frederic S. Miskin & Klaus Schmidt-Hebbel, 2007. "Does Inflation Targeting Make a Difference?," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 9, pages 291-372, Central Bank of Chile.
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    Cited by:

    1. Franz Ruch & Mehmet Balcilar & Rangan Gupta & Mampho P. Modise, 2020. "Forecasting core inflation: the case of South Africa," Applied Economics, Taylor & Francis Journals, vol. 52(28), pages 3004-3022, June.
    2. Stan du Plessis, Gideon du Rand & Kevin Kotzé, 2015. "Measuring Core Inflation in South Africa," Working Papers 503, Economic Research Southern Africa.

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    More about this item

    Keywords

    Singular Spectrum Analysis; Core Inflation; Non-parametric estimation;
    All these keywords.

    JEL classification:

    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • 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
    • N17 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Africa; Oceania

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