Hostname: page-component-cd9895bd7-dzt6s Total loading time: 0 Render date: 2024-12-27T21:32:17.529Z Has data issue: false hasContentIssue false
  • English
  • Français

U.S. CORE INFLATION: A WAVELET ANALYSIS

Published online by Cambridge University Press:  10 June 2010

Kevin Dowd ,
John Cotter  and
Lixia Loh
Kevin Dowd*
Affiliation:
Cass Business School
John Cotter
Affiliation:
University College Dublin
Lixia Loh
Affiliation:
Sheffield Hallam University
*
Address correspondence to: Kevin Dowd, Pensions Institute, Cass Business School, 106 Bunhill Row, London EC1Y 8TZ, United Kingdom; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper proposes the use of wavelet methods to estimate U.S. core inflation. It explains wavelet methods and suggests that they are ideally suited to this task. Comparisons are made with traditional Consumer Price Index–based and regression-based measures for their performance in following trend inflation and predicting future inflation. Results suggest that wavelet-based measures perform better, and sometimes much better, than the traditional approaches. These results suggest that wavelet methods are a promising avenue for future research on core inflation.

Keywords

Core InflationWaveletsTrend InflationInflation Prediction
Type
Articles
Information
Macroeconomic Dynamics , Volume 15 , Issue 4 , September 2011 , pp. 513 - 536
Copyright
Copyright © Cambridge University Press 2010

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Álvarez, L. J. and Llanos, M. (1999) Underlying inflation measures in Spain. In Proceedings of the Bank for International Settlements Workshop on Measures of Underlying Inflation and their Role in the Conduct of Monetary Policy. Available at http://www.bis.org/publ/bisp05_p6.pdf.Google Scholar
Apel, M. and Jansson, P. (1999) A parametric approach for estimating core inflation and interpreting the inflation process. In Proceedings of the Bank for International Settlements Workshop on Measures of Underlying Inflation and their Role in the Conduct of Monetary Policy. Available at http://www.bis.org/publ/bisp05_p2.pdf.Google Scholar
Blinder, A. S. (1997) Commentary. Federal Reserve Bank of St. Louis Review 79(May–June), 157–160.CrossRefGoogle Scholar
Bryan, M. F. and Cecchetti, S. G. (1993) The consumer price index as a measure of inflation. Federal Reserve Bank of Cleveland Economic Review 29, 15–24.Google Scholar
Bryan, M. F. and Cecchetti, S. G. (1994) Measuring core inflation. In Mankiw, N. Gregory (ed.), Monetary Policy, pp. 195–215. Chicago: Chicago University Press.Google Scholar
Bryan, M. F., Cecchetti, S. G., and Wiggins, R. L. III, (1997) Efficient Inflation Estimation. NBER working paper 6183.Google Scholar
Cecchetti, S. G. (1997) Measuring short-run inflation for central bankers. Federal Reserve Bank of St. Louis Review 79(May–June), 143–155.CrossRefGoogle Scholar
Clark, T. E. (2001) Comparing measures of core inflation. Federal Reserve Bank of Kansas City Economic Review 89(Second Quarter), 5–31.Google Scholar
Cockerell, L. (1999) Measures of inflation and inflation targeting in Australia. In Proceedings of the Bank for International Settlements Workshop on Measures of Underlying Inflation and their Role in the Conduct of Monetary Policy. Available at http://www.bis.org/publ/bisp05_p5.pdf.Google Scholar
Cogley, T. (2002) A simple adaptive measure of core inflation. Journal of Money, Credit, and Banking 34, 94–113.CrossRefGoogle Scholar
Daubechies, I. (1992) Ten Lectures on Wavelets, CBMS-NSF Regional Conference Series in Applied Mathematics, Volume 61. Philadelphia: Society for Industrial and Applied Mathematics.Google Scholar
Eckstein, O. (1981) Core Inflation. Englewood-Cliffs, NJ: Prentice–Hall.Google Scholar
Freeman, D. G. (1998) Do core inflation measures help forecast inflation? Economics Letters 58, 143–147.CrossRefGoogle Scholar
Gabor, D. (1946) Theory of communication. Journal of the Institute of Electrical Engineers 93, 429–457.Google Scholar
Gençay, R., Selçuk, F., and Whitcher, B. (2002) An Introduction to Wavelets and Other Filtering Methods in Economics and Finance. San Diego, CA: Academic Press.Google Scholar
Jensen, M. (1999) Using wavelets to obtain a consistent ordinary least squares estimator of the long-memory parameter. Journal of Forecasting 18, 17–32.3.0.CO;2-M>CrossRefGoogle Scholar
Mallat, S. (1989) A theory of multiresolution signal decomposition: the wavelet representation. IEEE Transactions on Pattern Analysis and Machine Intelligence 11, 674–693.CrossRefGoogle Scholar
Marques, C. R., Neves, P. D., and Sarmento, L. M. (2000) Evaluating Core Inflation Indicators. Banco de Portugal working paper 3–00.Google Scholar
Misiti, M., Misiti, Y., Oppenheim, G., and Poggi, J.-M. (2000) Wavelet Toolbox for Use with MATLAB. Natick, MA: The MathWorks, Inc.Google Scholar
Quah, D. and Vahey, S. P. (1995) Measuring core inflation. Economic Journal 105, 1130–1144.CrossRefGoogle Scholar
Ramsey, J. B. and Lampart, C. (1998) The decomposition of economic relationships by time scale using wavelets: Money and income. Macroeconomic Dynamics 2, 49–71.CrossRefGoogle Scholar
Ramsey, J. B. and Zhang, Z. (1997) The analysis of foreign exchange data using waveform dictionaries. Journal of Empirical Finance 4, 341–372.CrossRefGoogle Scholar
Roger, S. (1998) Core inflation: Concepts, Uses and Measurement. Mimeo. Reserve Bank of New Zealand.Google Scholar
Roughan, M., Veitch, D., and Abry, P. (2000) Real-time estimation of the parameters of long-range dependence. IEEE/ACM Transactions on Networking 8, 467–478.CrossRefGoogle Scholar
Schleicher, C. (2002) An Introduction to Wavelets for Economists. Bank of Canada working paper 2002–3.Google Scholar
Smith, J. K. (2004) Weighted median inflation: Is this core inflation? Journal of Money, Credit, and Banking 36, 253–263.CrossRefGoogle Scholar
Stevenson, M. (2001) Filtering and Forecasting Spot Electricity Prices in the Increasingly Deregulated Australian Electricity Market. Quantitative Finance Research Papers 63, University of Technology, Sydney.Google Scholar
Vega, J.-L. and Wynne, M. A. (2001) An Evaluation of Some Measures of Core Inflation for the Euro Area. European Central Bank working paper 53.Google Scholar
Wynne, M. A. (1997) Commentary. Federal Reserve Bank of St. Louis Review 79(May–June), 161–167.CrossRefGoogle Scholar
Wynne, M. A. (1999) Core Inflation: A Review of Some Conceptual Issues. European Central Bank working paper 5.5.CrossRefGoogle Scholar
Wynne, M. A. (2001) The Edgeworth Index as a Measure of Core Inflation. Mimeo, Federal Reserve Bank of Dallas.Google Scholar