Developing an underlying inflation gauge for China

Marlene Amstad, Huan Ye and Guonan Ma

No 11/2018, BOFIT Discussion Papers from Bank of Finland Institute for Emerging Economies (BOFIT)

Abstract: Inflation in emerging markets is often driven by large, persistent changes in food and energy prices. Core inflation measures that neglect or under-weight volatile CPI subcomponents such as food and energy risk excluding information helpful in assessing current and future inflation trends. This paper develops an underlying inflation gauge (UIG) for China, extracting the persistent part of the common component in a broad dataset of price and non-price variables. Our proposed UIG for China avoids the excess volatility reduction that plagues traditional Chinese core inflation measures. When forecasting headline CPI, the proposed UIG outperforms traditional core inflation measures over a variety of samples.

JEL-codes: C13 C33 C43 E31 E37 G15 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofitp:bdp2018_011

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