A Volatility and Persistence-Based Core Inflation

Tito Nícias da Silva Filho and Francisco Rodrigues Figueiredo

No 367, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: 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.

Date: 2014-11
New Economics Papers: this item is included in nep-cba and nep-mon
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Working Paper: A Volatility and Persistence-Based Core Inflation (2015)
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