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A Note on the Efficient Estimation of Inflation in Brazil

Author

Listed:
  • Michael F. Bryan
  • Stephen G. Cecchetti
Abstract
This paper investigates the use of trimmed-mean estimators and time-series averaging as techniques for improving the signal-to-noise ratio in high-frequency price data. We show that trimmed-mean estimators substantially increase the efficiency of the aggregate estimator compared to the more standard mean-measures. In this way, these estimators also reduce a central bank's need to time-series average the monthly inflation estimates which greatly improves the timeliness of the inflation statistic. In the case of Brazil, we find that asymmetrically trimming 24 percent from the tails of the price-change distribution reduces the RMSE of the monthly inflation statistic as a measure of the inflation trend by 23 percent, making it as accurate as the 3-month average growth rate of the mean retail price measure. We also demonstrate that a 3-month lagged moving average of the optimal (asymmetrically) trimmed mean is as efficient an estimator of the 24-month centered moving-average retail price growth trend as the mean inflation rate averaged over any horizon.

Suggested Citation

  • Michael F. Bryan & Stephen G. Cecchetti, 2001. "A Note on the Efficient Estimation of Inflation in Brazil," Working Papers Series 11, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:11
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    References listed on IDEAS

    as
    1. Balke, Nathan S. & Wynne, Mark A., 2000. "An equilibrium analysis of relative price changes and aggregate inflation," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 269-292, April.
    2. Michael F. Bryan & Stephen G. Cecchetti, 1993. "The consumer price index as a measure of inflation," Economic Review, Federal Reserve Bank of Cleveland, vol. 29(Q IV), pages 15-24.
    3. 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.
    4. Cogley, Timothy, 2002. "A Simple Adaptive Measure of Core Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 94-113, February.
    5. Michael F. Bryan & Stephen G. Cecchetti & Rodney L. Wiggins II, 1997. "Efficient Inflation Estimation," NBER Working Papers 6183, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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