A Volatility and Persistence-Based Core Inflation

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...

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Bibliographic Details
Main Author: da Silva Filho, Tito Nícias Teixeira
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2015
Series:IMF Working Papers
Subjects:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
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653 |a Price indexes 
653 |a Energy: Demand and Supply 
653 |a Inflation 
653 |a Oil prices 
653 |a Public finance & taxation 
653 |a Index Numbers and Aggregation 
653 |a Deflation 
653 |a National Government Expenditures and Related Policies: General 
653 |a Expenditure 
653 |a Price Level 
653 |a leading indicators 
653 |a Expenditures, Public 
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520 |a 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