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U.S. Core Inflation: A Wavelet Analysis

Author

Listed:
  • Kevin Dowd

    (The University of Nottingham, UK)

  • John Cotter

    (University College Dublin, Ireland)

Abstract

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," Working Papers 200617, Geary Institute, University College Dublin.
  • Handle: RePEc:ucd:wpaper:2006/17
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    References listed on IDEAS

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    Cited by:

    1. 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.
    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. 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.
    4. 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.
    5. Lahura, Erick & Vega, Marco, 2011. "Wavelet-based Core Inflation Measures: Evidence from Peru," Working Papers 2011-019, Banco Central de Reserva del Perú.
    6. 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.
    7. Josué Fernando Cortés Espada & Daniel Samano & Rubí Gutiérrez Villanueva, 2019. "Dynamics of Mexican Inflation: A Wavelet Analysis," Working Papers 2019-17, Banco de México.
    8. Muhammad Nadim Hanif & Javaid Iqbal & Syed Hamza Ali & Muhammad Abdus Salam, 2020. "Denoised Inflation: A New Measure of Core Inflation," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(2), pages 131-154.
    9. 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.
    10. 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

    core inflation; wavelets; trend inflation; inflation prediction;
    All these keywords.

    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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