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Trend Inflation Estimates for Thailand from Disaggregated Data

Pym Manopimoke and Vorada Limjaroenrat ()

PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research

Abstract: This paper constructs a new trend inflation measure for Thailand based on the multivariate unobserved components model with stochastic volatility and outlier adjustments (MUCSVO) of Stock and Watson (2015). Similar to core inflation, the MUCSVO constructs a measure of the underlying trend based on disaggregated data, but with time-varying sectoral weights that vary with the volatility, persistence and co-movement of the sectoral inflation series. Based on the empirical results, the majority of sectoral weights show significant time-variation, in contrast to their relatively stable expenditure shares. Volatile food and energy sectors that are typically excluded from core inflation measures also turn out to be less volatile, more persistent and explain approximately 10 percent of filtered trend inflation rate movements. Compared to various other trend inflation measures, we show that the MUCSVO delivers trend estimates that are smoother, has narrower confidence bands, and are able to forecast 8 quarter-ahead average inflation more accurately both in-sample and out-of-sample, especially in the post 2000 period.

Keywords: Disaggregate Prices; In flation; Outlier Adjustment; Stochastic Volatility; Time-varying Parameters; Trend-cycle Decomposition; Unobserved Components. (search for similar items in EconPapers)
JEL-codes: C33 E31 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2016-12, Revised 2016-12
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Published in PIER Discussion Paper Series

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Journal Article: Trend inflation estimates for Thailand from disaggregated data (2017) Downloads
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