U.S. Core Inflation: A Wavelet Analysis
49 Pages Posted: 22 Jun 2007
Date Written: 2006
This paper proposes the use of wavelet methods to estimate U.S. core inflation. It explains wavelet methods and suggests they are ideally suited to this task. Comparisons are made with traditional CPI-based and regression-based measures for their performance in following trend inflation and predicting future inflation. Results suggest that wavelet-based measures perform better, and sometimes much better, than the traditional approaches. These results suggest that wavelet methods are a promising avenue for future research on core inflation.
Keywords: core inflation, wavelets, trend inflation, inflation prediction
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