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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. 1 - Motivation. Relevant inflation for Central Bank Core inflation as a common indicator within Mercosur.

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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

1 motivation
1 - Motivation
  • Relevant inflation for Central Bank
  • Core inflation as a common indicator within Mercosur
3 core inflation in brazil
3 – 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
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
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)
6 core inflation estimates
6 - Core inflation estimates
  • Exclusion method
  • Symmetric trimmed mean with smoothed series
  • Asymmetric trimmed mean
7 exclusion method
7 - Exclusion method
  • IPCA less food at home and administered prices
  • Excluded items amount 46% of IPCA basket
8 exclusion method
8 – Exclusion method

Chart 1 - IPCA and exclusion core, Jan/96 through Apr/2001

11 20 trimmed mean
11 – 20% Trimmed mean

Chart 2 - IPCA and 20% trimmed-mean core, Jan/96 through Apr/2001

12 bryan cecchetti core
12 - 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
13 bryan cecchetti core
13- Bryan & Cecchetti core

Chart 3 -IPCA e Bryan & Cecchetti core , Jan/96 through Apr/2001

15 granger causality tests
15 - 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
16 impulse response from a bivariate var

Response of TRIM20 to TRIM20

Response of TRIM20 to IPCA

0.0015

0.0015

0.0010

0.0010

0.0005

0.0005

0.0000

0.0000

-0.0005

-0.0005

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2

3

4

5

6

7

8

9

10

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2

3

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Response of IPCA to TRIM20

0.004

0.004

0.003

0.003

0.002

0.002

0.001

0.001

0.000

0.000

-0.001

-0.001

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2

3

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5

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10

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16 - Impulse response from a bivariate VAR

IPCA and Trim 20 - Response to One S.D. Innovations ± 2 S.E.

Response of IPCA to IPCA

17 concluding remarks
17 - Concluding remarks
  • A essential tool to track the inflation trend path
  • Use a set of core inflation indicators
18 further research
18 - Further research
  • Use bootstrapping procedures to check the optimal trims in symmetric and asymmetric trimmed means
  • Combine different core inflation estimates