Estimators for IPCA core inflation
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Estimators for IPCA core inflation Francisco Marcos R. Figueiredo Roberta Blass Staub June 7 th , 2001 Research Department Central Bank of Brazil
description
Estimators for IPCA core inflation. Francisco Marcos R. Figueiredo Roberta Blass Staub June 7 th , 2001 Research Department Central Bank of Brazil. 1 - Motivation. Relevant inflation for Central Bank Core inflation as a common indicator within Mercosur. - PowerPoint PPT Presentation
Transcript of Estimators for IPCA core inflation
Estimators for IPCA core inflation
Estimators for IPCA core inflation
Francisco Marcos R. Figueiredo
Roberta Blass Staub
June 7th, 2001
Research Department Central Bank of Brazil
Research Department – Central Bank of Brazil
1 - Motivation1 - Motivation
Relevant inflation for Central Bank
Core inflation as a common indicator within Mercosur
Research Department – Central Bank of Brazil
2 – Core inflation measures used by Central Banks2 – Core inflation measures used by Central Banks
Australia CPI less mortgage interest payments, governmentcontrolled prices and energy prices
Belgium CPI less potatoes, fruit and vegetablesCanada CPI less indirect taxes, food and energy itemsChile CPI excluding perishable goods and energyColombia An average of four measures (CPI excluding food
and three limited influence estimator)Czech CPI less fees and controlled and regulated pricesFinland CPI less housing capital costs, indirect taxes, and
government subsidiesFrance CPI less change in taxes, energy prices, food prices
and regulated pricesGreece CPI less food and fuelIsrael CPI less goverment goods, housinh, fruit and
vegetablesJapan CPI less fresh foodsNetherlands CPI less vegetables, fruit, and energyNew Zealand CPI less commodity prices, government controlled
prices, interest and credit chargesNorway CPI less electricity prices and indirect taxesPhillipines A statistical trend linePoland A set of three measures (CPI less officialy controled
prcies, CPI less prices with highest volatilities anda 15% trimmed-mean)
Portugal 10% trimmed mean of the CPISingapore CPI less cost of private road transportation and
accommodationSpain CPI less mortgage interest paymentsSweden CPI less housing mortgage interest and effects of
taxes and subsidiesUnited Kingdom Retail price index less mortgage interest paymentUnited States CPI less food and energy items
Weighted median (FRB of Cleveland)
Research Department – Central Bank of Brazil
3 – Core inflation in Brazil3 – Core inflation in Brazil
FGV - trimmed mean with smoothed components (IPC-BR)
IPEA - common trend of prices and smoothed trimmed mean
Pichetti & Toledo - dynamic factor index and asymmetric trimmed mean
Central Bank - trimmed mean with smoothed components
Research Department – Central Bank of Brazil
4 – Desired characteristics of a core measure
4 – Desired characteristics of a core measure
Timely computable Forward looking nature Good performance in description of
the evolution of the inflation in the past
Easy understanding Definitive Theoretical base
Research Department – Central Bank of Brazil
5 – Statistical features of core inflation
5 – Statistical features of core inflation
Less volatile than the headline inflation
Long run stable relation with inflation
Inflation attractor (time precedence)
Research Department – Central Bank of Brazil
6 - Core inflation estimates6 - Core inflation estimates
Exclusion method Symmetric trimmed mean with
smoothed series Asymmetric trimmed mean
Research Department – Central Bank of Brazil
7 - Exclusion method7 - Exclusion method
IPCA less food at home and administered prices
Excluded items amount 46% of IPCA basket
Research Department – Central Bank of Brazil
8 – Exclusion method8 – Exclusion method
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IPCA
Exclusion Core
Chart 1 - IPCA and exclusion core, Jan/96 through Apr/2001
Research Department – Central Bank of Brazil
9 – Symmetric Trimmed mean9 – Symmetric Trimmed mean
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Research Department – Central Bank of Brazil
10 - 20% Trimmed mean10 - 20% Trimmed mean
Items Inferior Superior Total
More frequent trimmedPotatoes 52.46 39.34 91.80Vegetables 52.46 37.70 90.16Fish 45.90 40.98 86.89Cereals 45.90 36.07 81.97Fruits 62.30 18.03 80.33Sugar and sweets 42.62 32.79 75.41Fats and oils 54.10 21.31 75.41Household fuel 1.64 72.13 73.77Poultry and eggs 40.98 31.15 72.13Meat 36.07 34.43 70.49Dairy products 39.34 29.51 68.85Flour and prepared flour mixes 42.62 21.31 63.93Television, sound equipment 45.90 16.39 62.30Motor fuel 4.92 55.74 60.66Bedding and bath clothes 36.07 24.59 60.66Beverages 44.26 16.39 60.66
Less frequent trimmedMaintanance and repair commodities 14.75 14.75 29.51Decorator items 16.39 13.11 29.51Tuition, other school fees and childcare 0.00 27.87 27.87Reading materials 16.39 9.84 26.23Vehicles 14.75 8.20 22.95Personal care services 16.39 6.56 22.95Hospital and other medical care services 14.75 6.56 21.31Prepared food 9.84 9.84 19.67Professional services 13.11 3.28 16.39Domestic services 3.28 4.92 8.20Obs. The smoothed items are in boldface.
Research Department – Central Bank of Brazil
11 – 20% Trimmed mean11 – 20% Trimmed mean
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IPCA
Trimmed 20
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Chart 2 - IPCA and 20% trimmed-mean core, Jan/96 through Apr/2001
Research Department – Central Bank of Brazil
12 - Bryan & Cecchetti core12 - Bryan & Cecchetti core
Bryan and Cecchetti (2001) Asymmetric trimmed mean centered at
60th percentile 24-month moving average
Optimal trims 14.4% - lower tail 9.6% - upper tail
Research Department – Central Bank of Brazil
13- Bryan & Cecchetti core13- Bryan & Cecchetti core
Chart 3 - IPCA e Bryan & Cecchetti core , Jan/96 through Apr/2001
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IPCA
Bryan & Cecchetti Core
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Research Department – Central Bank of Brazil
14 - Statistics of core inflation measures14 - Statistics of core inflation measures
Table 1 - Statistics of core inflation indicators - Jan/96 to Apr/2001
Statistics IPCA Exclusion Trimmed 20 B & C
Acumul. Change 37.22 27.19 35.43 30.94
Standard-deviation 0.44 0.34 0.31 0.30
RMSE* 0.40 0.27 0.19 0.26
RMSE** 0.36 0.29 0.17 0.26
* The benchmark is a 13-month centered moving average of IPCA
** The benchmark is a 24-month centered moving average of IPCA
Research Department – Central Bank of Brazil
15 - Granger causality tests15 - Granger causality tests
Exclusion core does not cause IPCA is caused by IPCA
Trimmed 20 core causes IPCA ( 2 lags) is not caused by IPCA
Bryan & Cecchetti core causes IPCA is not caused by IPCA
Research Department – Central Bank of Brazil
16 - Impulse response from a bivariate VAR
16 - Impulse response from a bivariate VAR
-0.0005
0.0000
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0.0015
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Response of TRIM20 to TRIM20
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Response of TRIM20 to IPCA
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Response of IPCA to TRIM20
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Response of IPCA to IPCA
IPCA and Trim 20 - Response to One S.D. Innovations ± 2 S.E.
Research Department – Central Bank of Brazil
17 - Concluding remarks17 - Concluding remarks
A essential tool to track the inflation trend path
Use a set of core inflation indicators
Research Department – Central Bank of Brazil
18 - Further research18 - Further research
Use bootstrapping procedures to check the optimal trims in symmetric and asymmetric trimmed means
Combine different core inflation estimates
