[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/nbb/reswpp/200003-2.html
   My bibliography  Save this paper

The use of robust estimators as measures of core inflation

Author

Listed:
  • Luc Aucremanne

    (National Bank of Belgium, Research Department)

Abstract
This paper examines robust estimators of core inflation for Belgian historical CPI data, and for euro area Harmonised Indices of Consumer Prices. Evidence of fat tails in the cross-sections of price changes is provided by traditional measures, as well as by a robust measure of the tail weights that is not vulnerable to the masking phenomenon. Trimmed means are considered in the first instance. We introduce a new estimator where the optimal trimming percentage is the lowest percentage for which the hypothesis of normality of the trimmed samples cannot be rejected on the basis of the Jarque-Bera statistic. Two variants are considered, one with a constant and one with a time-varying optimal trimming percentage. The latter has a higher breakdown point. Symmetric and asymmetric trimming are considered as well. Another robust estimator, the one-step Huber-type skipped mean, which is less vulnerable to the masking phenomenon, is also examined. It is shown that the robust estimators outperform the traditional core inflation measures found in the literature. However, as traditional measures, they lag rather than lead observed inflation. This was particularly so in the 70s and the 80s when the oil price shocks had substantial second-round effects on Belgian inflation.

Suggested Citation

  • Luc Aucremanne, 2000. "The use of robust estimators as measures of core inflation," Working Paper Research 02, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:200003-2
    as

    Download full text from publisher

    File URL: https://www.nbb.be/doc/ts/publications/wp/wp2en.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Scott Roger, 1998. "Core inflation: concepts, uses and measurement," Reserve Bank of New Zealand Discussion Paper Series G98/9, Reserve Bank of New Zealand.
    2. Hasan Bakhshi & Tony Yates, 1999. "To trim or not to trim? An application of a trimmmed mean inflation estimator to the United Kingdom," Bank of England working papers 97, Bank of England.
    3. Michael F. Bryan & Stephen G. Cecchetti, 1994. "Measuring Core Inflation," NBER Chapters, in: Monetary Policy, pages 195-219, National Bureau of Economic Research, Inc.
    4. Robalo Marques, Carlos & Duarte Neves, Pedro & Morais Sarmento, Luis, 2003. "Evaluating core inflation indicators," Economic Modelling, Elsevier, vol. 20(4), pages 765-775, July.
    5. Meyler, Aidan, 1999. "A statistical measure of core inflation," MPRA Paper 11362, University Library of Munich, Germany.
    6. Oosterhoff, J., 1994. "Trimmed mean or sample median?," Statistics & Probability Letters, Elsevier, vol. 20(5), pages 401-409, August.
    7. Mio, Hitoshi & Higo, Masahiro, 1999. "Underlying Inflation and the Distribution of Price Change: Evidence from the Japanese Trimmed-Mean CPI," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(1), pages 103-132, May.
    8. Scott Roger, 1997. "A robust measure of core inflation in New Zealand, 1949-96," Reserve Bank of New Zealand Discussion Paper Series G97/7, Reserve Bank of New Zealand.
    9. Stephen G. Cecchetti, 1997. "Measuring short-run inflation for central bankers," Review, Federal Reserve Bank of St. Louis, issue May, pages 143-155.
    10. Laurence Ball & N. Gregory Mankiw, 1995. "Relative-Price Changes as Aggregate Supply Shocks," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(1), pages 161-193.
    11. Mark A. Wynne, 2008. "Core inflation: a review of some conceptual issues," Review, Federal Reserve Bank of St. Louis, vol. 90(May), pages 205-228.
    12. Michael F. Bryan & Stephen G. Cecchetti, 1999. "Inflation And The Distribution Of Price Changes," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 188-196, May.
    13. Engle, R. F. & Granger, C. W. J. (ed.), 1991. "Long-Run Economic Relationships: Readings in Cointegration," OUP Catalogue, Oxford University Press, number 9780198283393.
    14. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    15. Michael F. Bryan & Stephen G. Cecchetti & Rodney L. Wiggins II, 1997. "Efficient Inflation Estimation," NBER Working Papers 6183, National Bureau of Economic Research, Inc.
    16. Michael F. Bryan & Stephen G. Cecchetti, 1999. "The Monthly Measurement of Core Inflation in Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(1), pages 77-101, May.
    17. Jonathan Kearns, 1998. "The Distribution and Measurement of Inflation," RBA Research Discussion Papers rdp9810, Reserve Bank of Australia.
    18. Scott Roger, 1998. "Core Inflation: Concepts, Uses and Measurement," Occasional Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number occ24, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. José Manuel Madeira Belbute, 2015. "Assessing core inflation indicators: evidence for Angola," CEFAGE-UE Working Papers 2015_01, University of Evora, CEFAGE-UE (Portugal).
    2. Chrigui Zouhair & Boujelbene Younes, 2009. "The Opportunities for Adopting Inflation Targeting in Tunisia: a Cointegration Study and Transmission Channels of Monetary Policy," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 16(3), pages 671-692, October.
    3. Nazif Catik & Ozlem Onder, 2010. "The Distribution of The Inflation in Turkey," Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, vol. 10(2), pages 613-625.
    4. Patrick Bisciari & Alain Durré & Alain Nyssens, 2003. "Stock market valuation in the United States," Working Paper Document 41, National Bank of Belgium.
    5. Ivo Maes, 2002. "On the origins of the Franco-German EMU controversies," Working Paper Research 34, National Bank of Belgium.
    6. Mija, Simion & Slobozian, Dorin & Cuhal, Radu & Stratan, Alexandru, 2013. "How Core Inflation Reacts to the Second Round Effects," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 98-118, March.
    7. Jeanfils, P., 2000. "A Model with Explicit Expectations for Belgium," Papers 4, Warwick - Development Economics Research Centre.
    8. Juan‐Luis Vega & Mark A. Wynne, 2003. "A First Assessment of Some Measures of Core Inflation for the Euro Area," German Economic Review, Verein für Socialpolitik, vol. 4(3), pages 269-306, August.
    9. Vega, Juan Luis & Wynne, Mark A., 2001. "An evaluation of some measures of core inflation for the euro area," Working Paper Series 53, European Central Bank.
    10. Julie Smith, 2005. "Inflation targeting and core inflation," Canadian Journal of Economics, Canadian Economics Association, vol. 38(3), pages 1018-1036, August.
    11. Aucremanne, Luc & Dhyne, Emmanuel, 2004. "How frequently do prices change? Evidence based on the micro data underlying the Belgian CPI," Working Paper Series 331, European Central Bank.
    12. Amy Higgins & Randal J. Verbrugge, 2015. "Tracking Trend Inflation: Nonseasonally Adjusted Variants of the Median and Trimmed-Mean CPI," Working Papers (Old Series) 1527, Federal Reserve Bank of Cleveland.
    13. Jamie Armour, 2006. "An Evaluation of Core Inflation Measures," Staff Working Papers 06-10, Bank of Canada.
    14. Luc Aucremanne & Guy Brys & Peter J Rousseeuw & Anja Struyf & Mia Hubert, 2003. "Inflation, relative prices and nominal rigidities," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 81-105, Bank for International Settlements.
    15. George VAN GASTEL & François COPPENS & Hilde MEERSMAN & Nathalie SELLEKAERTS & Eddy VAN DE VOORDE & Thierry VANELSLANDER & Ann VERHETSEL, 2010. "Economic Impact of Port Activity: A Disaggregate Analysis. The Case of Antwerp," Regional and Urban Modeling 284100044, EcoMod.
    16. Mick Silver, 2006. "Core Inflation Measures and Statistical Issues in Choosing Among Them," IMF Working Papers 2006/097, International Monetary Fund.
    17. Vega, Juan Luis & Wynne, Mark A., 2001. "An evaluation of some measures of core inflation for the euro area," Working Paper Series 0053, European Central Bank.
    18. Geert Langenus, 2006. "Fiscal sustainability indicators and policy design in the face of ageing," Working Paper Research 102, National Bank of Belgium.
    19. Luc Aucremann & David Cornille, 2001. "Attractive prices and euro-rounding effects on inflation," Working Paper Document 17, National Bank of Belgium.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andrade, Isabel & O'Brien, Raymond, 2007. "A measure of core inflation in the UK," Discussion Paper Series In Economics And Econometrics 0708, Economics Division, School of Social Sciences, University of Southampton.
    2. Landau, Bettina, 2000. "Core inflation rates: a comparison of methods based on west German data," Discussion Paper Series 1: Economic Studies 2000,04, Deutsche Bundesbank.
    3. Mick Silver, 2006. "Core Inflation Measures and Statistical Issues in Choosing Among Them," IMF Working Papers 2006/097, International Monetary Fund.
    4. Juan‐Luis Vega & Mark A. Wynne, 2003. "A First Assessment of Some Measures of Core Inflation for the Euro Area," German Economic Review, Verein für Socialpolitik, vol. 4(3), pages 269-306, August.
    5. repec:bla:germec:v:4:y:2003:i::p:269-306 is not listed on IDEAS
    6. Luc Aucremanne & Guy Brys & Peter J Rousseeuw & Anja Struyf & Mia Hubert, 2003. "Inflation, relative prices and nominal rigidities," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 81-105, Bank for International Settlements.
    7. Pelin Berkmen, 2002. "Measuring Core Inflation for Turkey - Trimmed Means Approach," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 2(2), pages 1-18.
    8. Zelda Blignaut & Greg Farrell & Victor Munyama & Logan Rangasamy, 2009. "A Note On The Trimmed Mean Measure Of Core Inflation In South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 77(4), pages 538-552, December.
    9. José Manuel Madeira Belbute, 2015. "Assessing core inflation indicators: evidence for Angola," CEFAGE-UE Working Papers 2015_01, University of Evora, CEFAGE-UE (Portugal).
    10. Shahiduzzaman, Md, 2009. "Measuring Core Inflation in Bangladesh: The Choice of Alternative Methods," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 32(1), pages 23-44, March.
    11. Todd E. Clark, 2001. "Comparing measures of core inflation," Economic Review, Federal Reserve Bank of Kansas City, vol. 86(Q II), pages 5-31.
    12. Mark A. Wynne, 2008. "Core inflation: a review of some conceptual issues," Review, Federal Reserve Bank of St. Louis, vol. 90(May), pages 205-228.
    13. Vega, Juan Luis & Wynne, Mark A., 2001. "An evaluation of some measures of core inflation for the euro area," Working Paper Series 0053, European Central Bank.
    14. Dowd, Kevin & Cotter, John & Loh, Lixia, 2011. "U.S. Core Inflation: A Wavelet Analysis," Macroeconomic Dynamics, Cambridge University Press, vol. 15(4), pages 513-536, September.
    15. Dospinescu, Andrei Silviu, 2010. "Measuring Core Inflation in Romania Using the Dobrescu Method – A Comparative Approach," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 308-319, July.
    16. Oguz Atuk & Mustafa Utku Ozmen, 2009. "Design and Evaluation of Core Inflation Measures for Turkey," Working Papers 0903, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    17. Meyler, Aidan, 1999. "A Statistical Measure Of Core Inflation," Research Technical Papers 2/RT/99, Central Bank of Ireland.
    18. Muhammad Nadim Hanif & Javaid Iqbal & Syed Hamza Ali & Muhammad Abdus Salam, 2020. "Denoised Inflation: A New Measure of Core Inflation," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(2), pages 131-154.
    19. Gagik G. Aghajanyan, 2005. "Core inflation in a small transition country: choice of optimal measures," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 2(1), pages 83-110, June.
    20. Robalo Marques, Carlos & Duarte Neves, Pedro & Morais Sarmento, Luis, 2003. "Evaluating core inflation indicators," Economic Modelling, Elsevier, vol. 20(4), pages 765-775, July.
    21. Sanjay Kalra & Bui Thi Trang Dzung, 2016. "Robust Measures of Core Inflation for Vietnam," IMF Working Papers 2016/019, International Monetary Fund.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbb:reswpp:200003-2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/bnbgvbe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.