A Volatility and Persistence-Based Core Inflation

Tito Nícias da Silva Filho

No 2015/008, IMF Working Papers from International Monetary Fund

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. The latter have been advocated in the literature in recent years.

Keywords: WP; core inflation measure; multistep headline inflation forecast; quarterly headline inflation; core inflation literature; core inflation lag; Core inflation; inflation; persistence; volatility; triple weighted; Persistence-Based core inflation; Price indexes; Oil prices; Africa (search for similar items in EconPapers)
Pages: 19
Date: 2015-01-21
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Citations: View citations in EconPapers (2)

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Working Paper: A Volatility and Persistence-Based Core Inflation (2014)
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