Developing an underlying inflation gauge for China. Bruegel Working Paper 2014/11, 9 October 2014

This paper develops a new underlying inflation gauge (UIG) for China which differentiates between trend and noise, is available daily and uses a broad set of variables that potentially influence inflation. Its construction follows the works at other major central banks, adopts the methodology of a dynamic factor model that extracts the lower frequency components as developed by Forni et al (2000) and draws on the experience of the People’s Bank of China in modelling inflation.

A New Model Of Trend Inflation

This paper introduces a new model of trend (or underlying) inflation. In contrast to many earlier approaches, which allow for trend inflation to evolve according to a random walk, ours is a bounded model which ensures that trend inflation is constrained to lie in an interval. The bounds of this interval can either be fixed or estimated from the data. Our model also allows for a time-varying degree of persistence in the transitory component of inflation. The bounds placed on trend inflation mean that standard econometric methods for estimating linear Gaussian state space models cannot be used and we develop a posterior simulation algorithm for estimating the bounded trend inflation model. In an empirical exercise with CPI inflation we find the model to work well, yielding more sensible measures of trend inflation and forecasting better than popular alternatives such as the unobserved components stochastic volatility model.

MEDIDAS DE NÚCLEO INFLACIONARIO PARA COSTA RICA

En este documento se elaboran y evalúan medidas alternativas de núcleo inflacionario para Costa Rica. La idea fundamental contempla al núcleo inflacionario como un indicador de la tendencia subyacente de la inflación capaz de capturar el componente del cambio total de precios común a todos los bienes y servicios, cuya persistencia se mantendría en el mediano y largo plazo y que excluye los cambios en los precios relativos de estos. La medida de núcleo inflacionario seleccionada se contrasta con el Índice de Núcleo Inflacionario (INI), indicador de inflación subyacente actualmente utilizado por el Banco Central de Costa Rica (BCCR).El Índice Subyacente de Inflación (ISI), definido como una medida de núcleo inflacionario que excluye un 30,7% del peso total del Índice de Precios al Consumidor (IPC), refleja más fielmente la tendencia subyacente de la inflación y logra capturar el movimiento más permanente del nivel general de precios, aislando las variaciones en precios relativos. Además, el ISI es fácil de calcular e interpretar lo cual ayuda a incrementar la transparencia y credibilidad de la política monetaria. También es un indicador oportuno, aumentando su valor para los que formulan la política monetaria. Por último, el ISI supera algunas de las limitaciones del INI, como son la falta de un criterio estadístico para definir el punto de corte de los bienes y servicios a excluir y el alto porcentaje del peso total del IPC eliminado. AbstractThis paper builds and evaluates several alternative measures of core inflation for Costa Rica. The chosen measure of core inflation is contrasted with the core inflation index (INI), which is the indicator of underlying inflation used today by the Central Bank of Costa Rica (BCCR). The main idea is that core inflation is a good indicator of the underlying inflation and catches the part of overall price change common to all the goods and services that is expected to persist in the medium-term and long-term, and excludes changes in the relative prices of goods and services.The Underlying Inflation Index (ISI) is defined as a measure of core inflation which excludes 30,7% of the total weight of the Consumer Price Index (IPC), it is the most closely related with inflation´s underlying trend and catches the component of overall price change that is expected to persist in the general level of prices. Furthermore, the ISI is easy to compute and to follow, increasing the transparency and credibility of monetary policy and moreover is an timely indicator increasing its value for the monetary policy makers. Finally, the ISI exceed some limitations of INI, as the absence of statistic criterion to define the cutting point of goods and services to exclude and the high percent of total weight eliminated of IPC.

Forecasting annual inflation with seasonal monthly data: using levels versus logs of the underlying price index

This paper investigates whether using natural logarithms (logs) of price indices for forecasting inflation rates is preferable to employing the original series. Univariate forecasts for annual inflation rates for a number of European countries and the USA based on monthly seasonal consumer price indices are considered. Stochastic seasonality and deterministic seasonality models are used. In many cases, the forecasts based on the original variables result in substantially smaller root mean squared errors than models based on logs. In turn, if forecasts based on logs are superior, the gains are typically small. This outcome sheds doubt on the common practice in the academic literature to forecast inflation rates based on differences of logs.

Inflation Uncertainty, Exchange Rate Depreciation and Volatility: Evidence from Ghana, Mozambique and Tanzania

While flexible exchange rates facilitate stabilisation, exchange rate fluctuations can cause real volatility. This gives policy importance to the causal relationship between exchange rate depreciation and its volatility. An exchange rate may be expected to become more volatile when the underlying currency loses value. We conjecture that a reverse causation, which further weakens the currency, may be mitigated by price stability. Data from Ghana, Mozambique and Tanzania support this: depreciation makes exchange rate more volatile for all but volatility does not causes depreciation in Tanzania which has enjoyed a more stable inflation despite all countries adopting similar macro-policies since early 1990s.

Three essays on the determinants of output, inflation and interest rates

Résumé: Output, inflation and interest rates are key macroeconomic variables, in particular for monetary policy. In modern macroeconomic models they are driven by random shocks which feed through the economy in various ways. Models differ in the nature of shocks and their transmission mechanisms. This is the common theme underlying the three essays of this thesis. Each essay takes a different perspective on the subject: First, the thesis shows empirically how different shocks lead to different behavior of interest rates over the business cycle. For commonly analyzed shocks (technology and monetary policy errors), the patterns square with standard models. The big unknown are sources of inflation persistence. Then the thesis presents a theory of monetary policy, when the central bank can better observe structural shocks than the public. The public will then seek to infer the bank's extra knowledge from its policy actions and expectation management becomes a key factor of optimal policy. In a simple New Keynesian model, monetary policy becomes more concerned with inflation persistence than otherwise. Finally, the thesis points to the huge uncertainties involved in estimating the responses to structural shocks with permanent effects.

Real-time forecasting of inflation and output growth with autoregressive models in the presence of data revisions

We examine how the accuracy of real-time forecasts from models that include autoregressive terms can be improved by estimating the models on ‘lightly revised’ data instead of using data from the latest-available vintage. The benefits of estimating autoregressive models on lightly revised data are related to the nature of the data revision process and the underlying process for the true values. Empirically, we find improvements in root mean square forecasting error of 2–4% when forecasting output growth and inflation with univariate models, and of 8% with multivariate models. We show that multiple-vintage models, which explicitly model data revisions, require large estimation samples to deliver competitive forecasts. Copyright © 2012 John Wiley & Sons, Ltd.

Two additions to Lucas's "inflation and welfare"

This work adds to Lucas (2000) by providing analytical solutions to two problems that are solved only numerically by the author. The first part uses a theorem in control theory (Arrow' s sufficiency theorem) to provide sufficiency conditions to characterize the optimum in a shopping-time problem where the value function need not be concave. In the original paper the optimality of the first-order condition is characterized only by means of a numerical analysis. The second part of the paper provides a closed-form solution to the general-equilibrium expression of the welfare costs of inflation when the money demand is double logarithmic. This closed-form solution allows for the precise calculation of the difference between the general-equilibrium and Bailey's partial-equilibrium estimates of the welfare losses due to inflation. Again, in Lucas's original paper, the solution to the general-equilibrium-case underlying nonlinear differential equation is done only numerically, and the posterior assertion that the general-equilibrium welfare figures cannot be distinguished from those derived using Bailey's formula rely only on numerical simulations as well.

Underlying dynamics of typical fluctuations of an emerging market price index: the Heston model from minutes to months

We investigate the Heston model with stochastic volatility and exponential tails as a model for the typical price fluctuations of the Brazilian São Paulo Stock Exchange Index (IBOVESPA). Raw prices are first corrected for inflation and a period spanning 15 years characterized by memoryless returns is chosen for the analysis. Model parameters are estimated by observing volatility scaling and correlation properties. We show that the Heston model with at least two time scales for the volatility mean reverting dynamics satisfactorily describes price fluctuations ranging from time scales larger than 20min to 160 days. At time scales shorter than 20 min we observe autocorrelated returns and power law tails incompatible with the Heston model. Despite major regulatory changes, hyperinflation and currency crises experienced by the Brazilian market in the period studied, the general success of the description provided may be regarded as an evidence for a general underlying dynamics of price fluctuations at intermediate mesoeconomic time scales well approximated by the Heston model. We also notice that the connection between the Heston model and Ehrenfest urn models could be exploited for bringing new insights into the microeconomic market mechanics. (c) 2005 Elsevier B.V. All rights reserved.

Relative prices in Latin America in periods of low inflation and structural change

Includes bibliography

Surgical Treatment Of Type 2 Diabetes In Subjects With Mild Obesity: Mechanisms Underlying Metabolic Improvements.

This study aims to assess the clinical and physiological effects of Roux-en-Y gastric bypass (RYGBP) on type 2 diabetes associated with mild obesity (body mass index [BMI] 30-34.9 kg/m(2)) over 24 months postsurgery. In this prospective trial, 36 mildly obese subjects (19 males) with type 2 diabetes using oral antidiabetic drugs with (n = 24) or without insulin (n = 12) underwent RYGBP. Follow-up was conducted at baseline and 3, 6, 12, and 24 months postsurgery. The following endpoints were considered: changes in HbA1c, fasting glucose and insulin, antidiabetic therapy, BMI, oral glucose insulin sensitivity [OGIS, from meal tolerance test (MTT)], beta-cell secretory function [ΔCP(0-30)/ΔGlu(0-30) (ΔC-peptide/Δglucose ratio, MTT 0-30 min), disposition index (DI = OGIS [Symbol: see text] ΔCP(0-30)/ΔGlu(0-30)], glucagon-like peptide (GLP-1) and glucose-dependent insulinotropic polypeptide (GIP) [incremental area under the curve (AUCi)], adiponectin, C-reactive protein, and lipids. All subjects achieved normal-to-overweight BMI after 3 months. Over 24 months, 31/36 (86 %) subjects presented HbA1c <7 % [complete and partial remission of diabetes in 9/36 (22 %) and 1/36 (3 %), respectively]. Since 3 months postsurgery, improvements were observed in OGIS [290 (174) to 373 (77) ml/min/m(2), P = 0.009], ΔCP(0-30)/ΔGlu(0-30) [0.24 (0.19) to 0.52 (0.34) ng/mg, P = 0.001], DI [7.16 (8.53) to 19.8 (15.4) (ng/mg) (ml/min/m(2)), P = 0.001], GLP-1 AUCi [0.56 (0.64) to 3.97 (3.86) ng/dl [Symbol: see text] 10 min [Symbol: see text] 103, P = 0.000], and GIP AUCi [30.2 (12.6) to 27.0 (20.2) ng/dl [Symbol: see text] 10 min [Symbol: see text] 103, P = 0.004]. At baseline and after 12 months, subjects with diabetes nonremission had longer diabetes duration, higher HbA1c, lower beta-cell secretory function, and higher first 30-min GIP AUCi, compared with those with remission. RYGBP improves the glucose metabolism in subjects with type 2 diabetes and mild obesity. This effect is associated with improvement of insulin sensitivity, beta-cell secretory function, and incretin secretion.

Pollination Ecology Of Two Species Of Elleanthus (orchidaceae): Novel Mechanisms And Underlying Adaptations To Hummingbird Pollination.

Relationships among floral biology, floral micromorphology and pollinator behaviour in bird-pollinated orchids are important issues to understand the evolution of the huge flower diversity within Orchidaceae. We aimed to investigate floral mechanisms underlying the interaction with pollinators in two hummingbird-pollinated orchids occurring in the Atlantic forest. We assessed floral biology, nectar traits, nectary and column micromorphologies, breeding systems and pollinators. In both species, nectar is secreted by lip calli through spaces between the medial lamellar surfaces of epidermal cells. Such form of floral nectar secretion has not been previously described. Both species present functional protandry and are self-compatible yet pollinator-dependent. Fruit sets in hand-pollination experiments were more than twice those under natural conditions, evidencing pollen limitation. The absence of fruit set in interspecific crosses suggests the existence of post-pollination barriers between these synchronopatric species. In Elleanthus brasiliensis, fruits resulting from cross-pollination and natural conditions were heavier than those resulting from self-pollination, suggesting advantages to cross-pollination. Hummingbirds pollinated both species, which share at least one pollinator species. Species differences in floral morphologies led to distinct pollination mechanisms. In E. brasiliensis, attachment of pollinaria to the hummingbird bill occurs through a lever apparatus formed by an appendage in the column, another novelty to the knowledge of orchids. In E. crinipes, pollinaria attachment occurs by simple contact with the bill during insertion into the flower tube, which fits tightly around the bill. The novelties described here illustrate the overlooked richness in ecology and morphophysiology in Orchidaceae. This article is protected by copyright. All rights reserved.

Investigation Of Genetic Factors Underlying Typical Orofacial Clefts: Mutational Screening And Copy Number Variation.

Typical orofacial clefts (OFCs) comprise cleft lip, cleft palate and cleft lip and palate. The complex etiology has been postulated to involve chromosome rearrangements, gene mutations and environmental factors. A group of genes including IRF6, FOXE1, GLI2, MSX2, SKI, SATB2, MSX1 and FGF has been implicated in the etiology of OFCs. Recently, the role of the copy number variations (CNVs) has been studied in genetic defects and diseases. CNVs act by modifying gene expression, disrupting gene sequence or altering gene dosage. The aims of this study were to screen the above-mentioned genes and to investigate CNVs in patients with OFCs. The sample was composed of 23 unrelated individuals who were grouped according to phenotype (associated with other anomalies or isolated) and familial recurrence. New sequence variants in GLI2, MSX1 and FGF8 were detected in patients, but not in their parents, as well as in 200 control chromosomes, indicating that these were rare variants. CNV screening identified new genes that can influence OFC pathogenesis, particularly highlighting TCEB3 and KIF7, that could be further analyzed. The findings of the present study suggest that the mechanism underlying CNV associated with sequence variants may play a role in the etiology of OFC.

Mechanisms underlying the vasorelaxant action of the pimarane ent-8(14),15-pimaradien-3 beta-ol in the isolated rat aorta

Pimarane-type diterpenes were described to exert antispasmodic and relaxant activities. Based on this observation we hypothesized that the diterpene ent-8(14),15-pimaradien-3 beta-ol (PA-3 beta-ol) induced vascular relaxation. With this purpose, the present work investigates the mechanisms involved in the vasorelaxant effect of the pimarane-type diterpene PA-3 beta-ol. Vascular reactivity experiments, using standard muscle bath procedures, were performed in isolated aortic rings from male Wistar rats. Cytosolic calcium concentration ([Ca(2+)]c) was measured by confocal microscopy using the fluorescent probe Fluo-3AM. PA-3 beta-ol (10, 50 and 100 mu mol/l) inhibited phenylephrine and KCl-induced contraction in either endothelium-intact or denuded rat aortic rings. PA-3 beta-ol also reduced CaCl(2)-induced contraction in Ca(2+)-free solution containing KCl (30 mmol/l) or phenylephrine (0.1 mu mol/l). PA-3 beta-ol (1-300 mu mol/l) concentration dependently relaxed phenylephrine-pre-contracted rings with intact or denuded endothelium. The diterpene also relaxed KCl-pre-contracted rings with intact or denuded endothelium. Moreover, Ca(2+) mobilization study showed that PA-3 beta-ol (100 mu mol/l) and verapamil (1 mu mol/l) inhibited the increase in Ca(2+)-concentration in smooth muscle and endothelial cells induced by phenylephrine (10 mu mol/l) or KCl (60 mmol/l). Pre-incubation of intact or denuded aortic rings with N(G)-nitro-L-arginine methyl ester (L-NAME, 100 mu mol/l) and 1H-[1,2,4] Oxadiazolo[4,3-a]quinoxalin-1-one (ODQ 1 mu mol/l) produced a rightward displacement of the PA-3 beta-ol concentration-response curves. On the other hand, 7-nitroindazole (100 mu mol/l), 1400 W (1 mu mol/l), indomethacin (10 mu mol/l) and tetraethylammonium (1 mmol/l) did not affect PA-3 beta-ol-induced relaxation. Collectively, our results provide evidence that the effects elicited by PA-3 beta-ol involve extracellular Ca(2+) influx blockade. Its effects are also partly mediated by the activation of NO-cGMP pathway. (C) 2009 Elsevier B.V. All rights reserved.

Morphosyntactic and syntactic priming: an investigation of underlying processing mechanisms and the effects of Parkinson’s disease

There is now considerable evidence to suggest that non-demented people with Parkinson's disease (PD) experience difficulties using the morphosyntactic aspects of language. It remains unclear, however, at precisely which point in the processing of morphosyntax, these difficulties emerge. The major objective of the present study was to examine the impact of PD on the processes involved in accessing morphosyntactic information in the lexicon. Nineteen people with PD and 19 matched control subjects participated in the study which employed on-line word recognition tasks to examine morphosyntactic priming for local grammatical dependencies that occur both within (e.g. is going) and across (e.g. she gives) phrasal boundaries (Experiments 1 and 2, respectively). The control group evidenced robust morphosyntactic priming effects that were consistent with the involvement of both pre- (Experiment 1) and post-lexical (Experiment 2) processing routines. Whilst the participants with PD also recorded priming for dependencies within phrasal boundaries (Experiment 1), priming effects were observed over an abnormally brief time course. Further, in contrast to the controls, the PD group failed to record morphosyntactic priming for constructions that crossed phrasal boundaries (Experiment 2). The results demonstrate that attentionally mediated mechanisms operating at both the pre- and post-lexical stages of processing are able to contribute to morphosyntactic priming effects. In addition, the findings support the notion that, whilst people with PD are able to access morphosyntactic information in a normal manner, the time frame in which this information remains available for processing is altered. Deficits may also be experienced at the post-lexical integrational stage of processing.