Affiliation:
1. State Bank of Pakistan
Abstract
Abstract
Existing measures of core inflation ignore a part of ‘should be’ the core inflation. Exclusion based measures ‘exclude’ a part of persistent inflation inherently existing in the excluded part whereas filter based measures ‘filter-out’ the cyclical part also rather than the irregular component only. This study proposes a new idea to define and measure core inflation – noise free inflation or denoised inflation. As against considering only trend to define core inflation, this study proposes using cyclical component also to be part of core inflation. If core inflation is to be useful, for monetary policy making, as an indicator of underlying inflation, it has to include demand related component of inflation associated with current economic cycle. By using wavelet analysis approach to decompose seasonally adjusted price index into noise, cyclical component and trend, we estimate a denoised inflation series for Pakistan for the period July 1992 to June 2017. Since denoised inflation passes ‘statistical’ as well as ‘theoretical’ tests necessary for a series to be core inflation, we think it can be used as a new core inflation measure for Pakistan. This can also be estimated and tested for any country.
Subject
Strategy and Management,Economics and Econometrics,Finance
Reference26 articles.
1. 1. Aguiar, M., & Gopinath, G. (2007). Emerging market business cycles: The cycle is the trend. Journal of political Economy, 115(1), 69-102.10.1086/511283
2. 2. Bakhshi, H., & Yates, A. (1999). To trim or not to trim? An application of a trimmed mean inflation estimator to the United Kingdom. Bank of England Working Paper No. 97. Available at SSRN: https://ssrn.com/abstract=17668810.2139/ssrn.176688
3. 3. Bank for International Settlements (1999). Measures of underlying inflation and their role in the conduct of monetary policy. Proceedings of the workshop of central bank model builders, held at the BIS, Switzerland.
4. 4. Bryan, M. and S. Cecchetti. (1994). The consumer price index as a measure of inflation. Federal Reserve Bank of Cleveland, Economic Review, 29(4), 15-24.
5. 5. Cashin, P., McDermott, C. J., & Scott, A. (2002). Booms and slumps in world commodity prices. Journal of Development Economics, 69(1), 277-296.10.1016/S0304-3878(02)00062-7
Cited by
2 articles.
订阅此论文施引文献
订阅此论文施引文献,注册后可以免费订阅5篇论文的施引文献,订阅后可以查看论文全部施引文献