Robust Measures of Core Inflation for Vietnam

IMF Working Papers, February 10, 2016

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The paper develops robust measures of core inflation for Vietnam that can be used in policy making.
Core inflation measures (CIMs) are based on an analytical evaluation of the inflation process in Vietnam and use a filtering approach to narrow down potential measures that satisfy certain empirically desirable criteria.
The paper finds that commonly used exclusion-based measures (EBMs) do not perform well against these empirical criteria; trimmed mean measures (TMMs) do better.
Among TMMs, “one trim does not fit all periods”; periods of high and variable inflation require larger trims, and conversely.
EVIEWS and MATLAB programs which accompany the paper allow quick, timely replication of CIMs as new data become available, making them valuable tools for the State Bank of Vietnam on an ongoing basis.

Uses an analytical evaluation of the inflation process in Vietnam.
Applies a filtering approach to narrow down potential core inflation measures that satisfy empirically desirable criteria.
Compares exclusion-based measures (EBMs) and trimmed mean measures (TMMs) against empirical criteria derived from the inflation process.

Trimmed mean measures (TMMs) are more robust than commonly used exclusion-based measures (EBMs) for Vietnam.
The appropriate trim for TMMs should vary over time: larger trims for periods of high and variable inflation, smaller trims for more stable periods.
CIMs constructed from this approach can be used in policy making by the State Bank of Vietnam.

EVIEWS and MATLAB programs accompany the paper to enable quick, timely replication of CIMs as new data become available.
These programs make the CIMs valuable ongoing tools for the State Bank of Vietnam.