A policy-sensible benchmark core inflation measure
AbstractCore or underlying inflation indicators feature prominently in the economic debate and in internal and external policy discussions of central banks. Notwithstanding this popularity the role of core inflation measures in the monetary policy-making process is questionable since most of these measures are based exclusively on statistical criteria without any theoretical justification. In this paper we propose an approach to building a benchmark measure of core inflation that explicitly treats core inflation as an artificial concept whose usefulness rests exclusively with its use in improving monetary policy effectiveness. Using this measure, constructed on the basis of the solution to a standard optimal monetary policy problem, we assess the performance and policy usefulness of other, popular core inflation indicators. Our approach is illustrated by means of two applications to euro-area and US data. Copyright 2011 Oxford University Press 2011 All rights reserved, Oxford University Press.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Oxford University Press in its journal Oxford Economic Papers.
Volume (Year): 63 (2011)
Issue (Month): 4 (December)
Contact details of provider:
Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
Fax: 01865 267 985
Web page: http://oep.oupjournals.org/
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Quah, Danny, 1995.
"Measuring Core Inflation,"
CEPR Discussion Papers
1153, C.E.P.R. Discussion Papers.
- Lawrence J. Christiano & Terry J. Fitzgerald, 1999.
"The Band Pass Filter,"
NBER Working Papers
7257, National Bureau of Economic Research, Inc.
- Cristadoro, Riccardo & Forni, Mario & Reichlin, Lucrezia & Veronese, Giovanni, 2001.
"A Core Inflation Index for the Euro Area,"
CEPR Discussion Papers
3097, C.E.P.R. Discussion Papers.
- Martin Bodenstein & Christopher J. Erceg & Luca Guerrieri, 2008.
"Optimal monetary policy with distinct core and headline inflation rates,"
International Finance Discussion Papers
941, Board of Governors of the Federal Reserve System (U.S.).
- Bodenstein, Martin & Erceg, Christopher J. & Guerrieri, Luca, 2008. "Optimal monetary policy with distinct core and headline inflation rates," Journal of Monetary Economics, Elsevier, vol. 55(Supplemen), pages S18-S33, October.
- Stefano Eusepi & Bart Hobijn & Andrea Tambalotti, 2009.
"CONDI: a cost-of-nominal-distortions index,"
367, Federal Reserve Bank of New York.
- Pedro Duarte Neves & Luís Morais Sarmento & Carlos Robalo Marques, 1999.
"Evaluating core inflation indicators,"
Economic Bulletin and Financial Stability Report Articles,
Banco de Portugal, Economics and Research Department.
- Nicoletta Batini & Andrew Haldane, 1999.
"Forward-Looking Rules for Monetary Policy,"
in: Monetary Policy Rules, pages 157-202
National Bureau of Economic Research, Inc.
- Benigno, Pierpaolo, 2001.
"Optimal Monetary Policy in a Currency Area,"
CEPR Discussion Papers
2755, C.E.P.R. Discussion Papers.
- Timothy Cogley, 1998.
"A simple adaptive measure of core inflation,"
Working Papers in Applied Economic Theory and Econometrics
98-06, Federal Reserve Bank of San Francisco.
- Smith, Julie K, 2004. "Weighted Median Inflation: Is This Core Inflation?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 253-63, April.
- Vega, Juan Luis & Wynne, Mark A., 2001. "An evaluation of some measures of core inflation for the euro area," Working Paper Series 0053, European Central Bank.
- François R. Velde, 2006. "An alternative measure of inflation," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 56-65.
- Jim Dolmas, 2005. "Trimmed mean PCE inflation," Working Papers 05-06, Federal Reserve Bank of Dallas.
- Paolo Angelini & Paolo Del Giovane & Stefano Siviero & Daniele Terlizzese, 2002. "Monetary Policy Rules for the Euro Area: What Role for National Information?," Temi di discussione (Economic working papers) 457, Bank of Italy, Economic Research and International Relations Area.
- Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1415-1464, November.
- Todd E. Clark, 2001. "Comparing measures of core inflation," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-31.
- Robert Rich & Charles Steindel, 2007. "A comparison of measures of core inflation," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 19-38.
- John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, October.
- Fabio Bagliano & Roberto Golinelli & Claudio Morana, 2002. "Core inflation in the Euro area," Applied Economics Letters, Taylor and Francis Journals, vol. 9(6), pages 353-357.
- N. Neil K. Khettry & Loretta J. Mester, 2006. "Core inflation as a predictor of total inflation," Research Rap Special Report, Federal Reserve Bank of Philadelphia, issue Apr 26.
- Emmanuel Dhyne & Luis J. Alvarez & Herve Le Bihan & Giovanni Veronese & Daniel Dias & Johannes Hoffmann & Nicole Jonker & Patrick Lunnemann & Fabio Rumler & Jouko Vilmunen, 2006. "Price Changes in the Euro Area and the United States: Some Facts from Individual Consumer Price Data," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 171-192, Spring.
- Julie K. Smith, 2012. "PCE inflation and core inflation," Working Papers 1203, Federal Reserve Bank of Dallas.
- Aoki, Kosuke, 2001. "Optimal monetary policy responses to relative-price changes," Journal of Monetary Economics, Elsevier, vol. 48(1), pages 55-80, August.
- Danny Quah & Danny Quah & Shaun P. Vahey, 1995.
"Measuring Core Inflation,"
CEP Discussion Papers
dp0254, Centre for Economic Performance, LSE.
- Libero Monteforte & Stefano Siviero, 2010. "The economic consequences of euro-area macro-modelling shortcuts," Applied Economics, Taylor and Francis Journals, vol. 42(19), pages 2399-2415.
- Le Bihan, Herve & Sedillot, Franck, 2000. "Do core inflation measures help forecast inflation?: Out-of-sample evidence from French data," Economics Letters, Elsevier, vol. 69(3), pages 261-266, December.
- Jim Dolmas & Mark A. Wynne, 2008. "Measuring core inflation: notes from a 2007 Dallas Fed conference," Staff Papers, Federal Reserve Bank of Dallas, issue May.
- Wojciech Charemza & Yuriy Kharin & Vladislav Maevskiy, 2012. "Bilinear forecast risk assessment for non-systematic inflation: Theory and evidence," Discussion Papers in Economics 12/22, Department of Economics, University of Leicester.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.