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Towards a Measure of Core Inflation using Singular Spectrum Analysis
Author(s) -
Ruch Franz,
Bester Dirk
Publication year - 2013
Publication title -
south african journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.502
H-Index - 31
eISSN - 1813-6982
pISSN - 0038-2280
DOI - 10.1111/j.1813-6982.2012.01340.x
Subject(s) - core inflation , inflation (cosmology) , singular spectrum analysis , economics , econometrics , core (optical fiber) , measure (data warehouse) , mathematics , monetary policy , macroeconomics , inflation targeting , computer science , physics , theoretical physics , algorithm , telecommunications , database , singular value decomposition
This paper constructs a number of possible core measures of inflation using singular spectrum analysis ( SSA ). Annual changes in monthly inflation are decomposed into its trend, oscillatory and noise components in order to develop an understanding of the trend and cyclicality in S outh A frican headline inflation. Three cyclical components with differing amplitude and frequency are identified. The trend and cyclical components of inflation are found to be a good approximation of core inflation, the inertial part of inflation. These core measures are compared with other candidate core measures based on the properties of a good core inflation measure. Generally, the SSA measures outperform commonly used measures of core inflation based on both in‐ and out‐of‐sample performance.