UCM: A measure of core inflation

Sujata Kar

International Journal of Monetary Economics and Finance, 2010, vol. 3, issue 3, 248-269

Abstract: The primary objective of this paper is to establish the superiority of Unobserved Components Models (UCMs) as a measure of core inflation over alternative econometric methods, namely Structural Vector Autoregressive (SVAR). UCMs have the advantage of allowing the policy makers to decide which components of the headline inflation should be defined as permanent and which one as transitory on the basis of their duration. The paper also comments on the comparative performance of annually differenced series over seasonally differenced series. The UCMs are found to generate reasonable medium to long-term out-of-sample forecasts of Wholesale Price Index (WPI) inflation.

Keywords: core inflation; UCM; unobserved components model; out-of-sample forecasts; SVAR; structural vector autoregressive; comparative performance; wholesale price index; WPI inflation. (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (2)

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