FGV/IBRE Core Inflation Estimators for the Brazilian Economy Jack Schechtman Rebecca Barros Core Inflation and Price Index Harmonization Seminar held at Central Bank of Brazil Rio de Janeiro, June 2001

Starting Point Jevons (1865) - Generalized Inflation

Main Objective To extract information from individual price changes in order to detect a generalized movement of prices

Relative Price Adjustment and Cross 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 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 Approach

Measure of Core Inflation

NEW RESEARCH ON MEASURING CORE INFLATION - INFORMATION CORE -