A Volatility and Persistence-Based Core Inflation

Author/Editor:

Tito Nícias Teixeira da Silva Filho ; Francisco Marcos Rodrigues Figueiredo

Publication Date:

January 21, 2015

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 15/8

Subject:

English

Publication Date:

January 21, 2015

ISBN/ISSN:

9781484387818/1018-5941

Stock No:

WPIEA2015008

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

19

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