The dynamic relationship between core and headline inflation

Gamber, Edward N.; Smith, Julie K.; Eftimoiu, Raluca

doi:10.1016/j.jeconbus.2015.05.002

Cited by 10 publications

(4 citation statements)

References 28 publications

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“…We ran a few forecasting tests using the 16% trimmed-mean CPI and, consistent withMeyer and Venkatu (2012) found qualitatively similar results.5 In light of recent research (e.g Gamber et al (2015)…”

supporting

confidence: 74%

The usefulness of the median CPI in Bayesian VARs used for macroeconomic forecasting and policy

Meyer

Zaman

2018

Empir Econ

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In this paper we investigate the forecasting performance of the median Consumer Price Index (CPI) in a variety of Bayesian Vector Autoregressions (BVARs) that are often used for monetary policy. Until now, the use of trimmed-mean price statistics in forecasting inflation has often been relegated to simple univariate or "Phillips-Curve" approaches, thus limiting their usefulness in applications that require consistent forecasts of multiple macro variables. We find that inclusion of an extreme trimmed-mean measure-the median CPI-improves the forecasts of both core and headline inflation (CPI and Personal Consumption Expenditures Price Index) across our set of monthly and quarterly BVARs. While the inflation forecasting improvements are perhaps not surprising given the current literature on core inflation statistics, we also find that inclusion of the median CPI improves the forecasting accuracy of the central bank's primary instrument for monetary policy-the federal funds rate. We conclude with a few illustrative exercises that highlight the usefulness of using the median CPI.

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supporting

confidence: 74%

The usefulness of the median CPI in Bayesian VARs used for macroeconomic forecasting and policy

Meyer

Zaman

2018

Empir Econ

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“…As medidas IPCA-EX2 e IPCA-MS foram as únicas que apresentaram a dinâmica de ajustamento esperada para todos os horizontes de tempo escolhido, ou seja, é o IPCA que se move em direção a esses núcleos. No trabalho de Gamber et al (2013) encontra-se resultado semelhante com a aplicação do mesmo modelo de ajustamento com dados dos Estados Unidos para o núcleo por médias aparadas.…”

Section: Tabela 1: Procedimento Dos Testes De Estacionariedade Teste unclassified

Evaluating core inflation measures in Brazil

Santos¹,

Castelar²

2016

Econ. Aplic.

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ResumoEste artigo avalia as medidas de núcleo da inflação utilizadas pelo Banco Central do Brasil a partir de modelos econométricos de séries temporais. Três aspectos básicos do núcleo são avaliados: a ausência de viés, a dinâmica de ajustamento e a capacidade preditiva fora da amostra. As medidas avaliadas foram o núcleo por exclusão sem monitorados e alimentos no domicílio, o núcleo por exclusão ex2, o núcleo médias aparadas suavizadas e o núcleo dupla ponderação. Os resultados mostram que apenas os núcleos por exclusão ex2 e as médias aparadas suavizadas não possuem viés e servem como indicador da dinâmica de ajustamento para a inflação. Com relação à capacidade preditiva, os resultados indicam que os núcleos divulgados pelo BC do Brasil não são adequados para prever a inflação no longo prazo.Palavras-chave: Núcleo da Inflação; Medidas; Avaliação; Previsão. AbstractThis paper evaluates four core inflation indicators used by the Central Bank of Brazil; that is, the exclusion indicator, the exclusion ex2 indicator, the smoothed trimmed mean and the double weight indicator. Econometric time series models were used to assess the unbiasedness, the dynamic adjustment, and the predictive ability of core inflation indicators. The results show that only the exclusion ex2 and smoothed trimmed mean were unbiased and they can serve as indicators of dynamic adjustment for inflation. With respect to forecast ability, one can say that the core inflation indicators used by the Central Bank are not suitable to forecast long-term inflation.

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“…Although these studies have made great contributions to core inflation measurement, their applications will be subject to some rigorous constraints. That is, such structural models usually require data to be normally distributed, and will not be applicable when data is characterized by "leptokurtosis and fat-tail" and "volatility clustering" (Bermingham, 2010;Gamber et al, 2015;Sharma & Sahu, 2022).…”

Section: Literature Reviewmentioning

confidence: 99%

Solving the Puzzle of China’s Low Inflation: A New Perspective From Sectoral Core Inflation Fluctuations

Liu,

Xu,

Song

et al. 2024

Technological and Economic Development of Economy

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China’s constantly rapid economic growth accompanying by a low overall inflation has long been mysterious in macroeconomics. The core purpose of this paper is to solve this puzzle. Therefore, we integrate overdetermined set of equations into a MUCSVO model to explore the volatility mechanism of the overall inflation from a sectoral perspective. Our key findings include: 1) the hedging effect of sectoral inflation fluctuations principally accounts for China’s long-run stable overall inflation; 2) the main contradiction of China’s inflation has been shifting from high price levels in the traditional food and residence categories to rising prices in the health care category; 3) as the proportions of inflation in the food and residence categories fall steadily, sectoral inflation weights become more evenly distributed. In conclusion, China’s overall inflation and deflation will be much less likely to occur, while inflation is still of sectoral imbalance. Unusual price fluctuations in the food and health care categories, which are highly relevant to basic living standards of the low-income group, deserve close attention in particular. Overall, besides solving the puzzle of China’s low inflation, our model is applicable to economies that do not publish inflation weights, which is a useful extension of core inflation measurement.

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The dynamic relationship between core and headline inflation

Cited by 10 publications

References 28 publications

The usefulness of the median CPI in Bayesian VARs used for macroeconomic forecasting and policy

The usefulness of the median CPI in Bayesian VARs used for macroeconomic forecasting and policy

Evaluating core inflation measures in Brazil

Solving the Puzzle of China’s Low Inflation: A New Perspective From Sectoral Core Inflation Fluctuations

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