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FGV/IBREFGV/IBRECore Inflation Estimators for the Core Inflation Estimators for the
Brazilian EconomyBrazilian Economy
Jack Schechtman Jack Schechtman
Rebecca BarrosRebecca Barros
Core Inflation and Price Index HarmonizationCore Inflation and Price Index Harmonization
Seminar held at Central Bank of BrazilSeminar held at Central Bank of Brazil
Rio de Janeiro, 07-08 June 2001Rio de Janeiro, 07-08 June 2001
Starting PointStarting Point
“... as it seems likely to give in the most accurate manner such general
change in prices as is due to a change on part of gold. For any change in
gold will affect all prices in an equal ratio; and if other disturbing causes
may be considered proportional to the ratio of change of price they produce
in one or more commodities, then all the individual variations
of prices will be correctly balanced off against each other
in a geometric mean, and the true variation of the value of gold
will be detected.”
•Jevons (1865) - Generalized Inflation
Main ObjectiveMain Objective
• To extract information from individual price changes in order to detect a generalized movement of prices
Relative Price Adjustment and Relative Price Adjustment and Cross Section DistributionCross Section Distribution
• Cross Section Distribution– High Degree of Kurtosis (Non-normal distribution)– Arithmetic Mean looses efficiency as a central
measure estimator • Menu Cost• Market Imperfections• Asymmetric Information• Expectations
Our ApproachOur Approach
• The traditional methodology of trimmed means (Bryan, Ceccheti, Winggins and Roger) with the following additional considerations:
– Individual price changes may carry information about the generalized movement of prices
– There must be a special treatment for prices that are adjusted once a year or a few times per year - e.g. administered prices, etc
Our ApproachOur Approach
510
1520
2530
3540
4550
24
68
1012
3,00
3,50
4,00
4,50
5,00
5,50
RM
SE
Trim
RMSE - Benchmark 12 Months Centered Avarage
5,0000-5,5000
4,5000-5,0000
4,0000-4,5000
3,5000-4,0000
3,0000-3,5000
Measure of Core InflationMeasure of Core Inflation
% Monthly Change - IPC and CORE
-1
-0,5
0
0,5
1
1,5
2
2,5
3
19
96
-01
19
96
-03
19
96
-05
19
96
-07
19
96
-09
19
96
-11
19
97
-01
19
97
-03
19
97
-05
19
97
-07
19
97
-09
19
97
-11
19
98
-01
19
98
-03
19
98
-05
19
98
-07
19
98
-09
19
98
-11
19
99
-01
19
99
-03
19
99
-05
19
99
-07
19
99
-09
19
99
-11
20
00
-01
20
00
-03
20
00
-05
20
00
-07
20
00
-09
20
00
-11
Core IPC
NEW RESEARCH ON MEASURING NEW RESEARCH ON MEASURING CORE INFLATION CORE INFLATION
-- INFORMATION CORE -INFORMATION CORE -% Monthly Change - IPC, CORE and Information CORE
-1
-0,5
0
0,5
1
1,5
2
2,5
3
19
96
-01
19
96
-03
19
96
-05
19
96
-07
19
96
-09
19
96
-11
19
97
-01
19
97
-03
19
97
-05
19
97
-07
19
97
-09
19
97
-11
19
98
-01
19
98
-03
19
98
-05
19
98
-07
19
98
-09
19
98
-11
19
99
-01
19
99
-03
19
99
-05
19
99
-07
19
99
-09
19
99
-11
20
00
-01
20
00
-03
20
00
-05
20
00
-07
20
00
-09
20
00
-11
CoreIPCInformation Core
