Indian Wpi Inflation: Modelling the Headline and the Core

Inflation is a common economic phenomenon that concerns ordinary people, policy makers, firms, trade unions and researchers alike across the globe. The first few chapters of the book estimate heuristic multivariate models of Indian annual WPI inflation for 1971-2003. The selection of explanatory variables is guided by their significance in the existing literature irrespective of their association with specific schools of thought, and a preliminary investigation using correlation coefficients and graphical exposition. The annual models are evaluated on the basis of goodness of fit and in-sample and out-of-sample forecast performance. Later chapters estimate alternative core inflation series from monthly WPI data. Core inflation has become the focus of central banks and policy makers in many developed countries. In India only a few attempts exist; none are comprehensive in their approach. The tools and models used in this book improve upon the existing practices by applying several alternative statistical and econometric methods. These core series are evaluated in terms of their proximity to the benchmark core and their short term and long term forecast performance.