IMF Working Papers

A Volatility and Persistence-Based Core Inflation

Author/Editor:

Tito Nícias Teixeira da Silva Filho

Publication Date:

January 21, 2015

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Summary:

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.

Series:

Working Paper No. 2015/008

Subject:

Expenditure Inflation Oil prices Price indexes Prices