IDEAS home Printed from https://ideas.repec.org/a/rjr/romjef/vy2013i1p98-118.html
   My bibliography  Save this article

How Core Inflation Reacts to the Second Round Effects

Author

Listed:
  • Mija, Simion

    (National Bank of Moldova, Monetary Policy and Research Department, Republic of Moldova)

  • Slobozian, Dorin

    (National Bank of Moldova, Monetary Policy and Research Department, Republic of Moldova)

  • Cuhal, Radu

    (National Bank of Moldova, Monetary Policy and Research Department, Republic of Moldova)

  • Stratan, Alexandru

    (Institute of Economy, Finances and Statistics, Republic of Moldova)

Abstract

In order to evaluate the second round effects on core inflation, an econometric model based on auto-regressive vector technique was built. The way the core inflation reacts to the changes of oil and food prices on international markets, is an important matter for monetary policy. Another important issue for monetary policy is outlined by the internal markets, and mainly the way the core inflation responds, accordingly, to the changes of the fuel and food prices. The payoff of these changes on core inflation is a priori considered to be significant. The paper tests the above-mentioned hypothesis and the results of the study justify the impact of changes in oil and food prices on core inflation.

Suggested Citation

  • Mija, Simion & Slobozian, Dorin & Cuhal, Radu & Stratan, Alexandru, 2013. "How Core Inflation Reacts to the Second Round Effects," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 98-118, March.
    • Handle: RePEc:rjr:romjef:v::y:2013:i:1:p:98-118
    as

    Download full text from publisher

    File URL: http://www.ipe.ro/rjef/rjef1_13/rjef1_2013p98-118.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Frederic S. Miskin & Klaus Schmidt-Hebbel, 2007. "Does Inflation Targeting Make a Difference?," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 9, pages 291-372, Central Bank of Chile.
    2. Anand, Rahul & Prasad, Eswar, 2010. "Optimal Price Indices for Targeting Inflation under Incomplete Markets," IZA Discussion Papers 5137, Institute of Labor Economics (IZA).
    3. LeBlanc, Michael & Chinn, Menzie David, 2004. "Do High Oil Prices Presage Inflation? The Evidence from G-5 Countries," Santa Cruz Department of Economics, Working Paper Series qt4wt4m7hg, Department of Economics, UC Santa Cruz.
    4. Mark A. Wynne, 2008. "Core inflation: a review of some conceptual issues," Review, Federal Reserve Bank of St. Louis, vol. 90(May), pages 205-228.
    5. Hunt, Benjamin & Isard, Peter & Laxton, Douglas, 2002. "The Macroeconomic Effects of Higher Oil Prices," National Institute Economic Review, National Institute of Economic and Social Research, vol. 179, pages 87-103, January.
    6. Bilke, Laurent & Stracca, Livio, 2007. "A persistence-weighted measure of core inflation in the Euro area," Economic Modelling, Elsevier, vol. 24(6), pages 1032-1047, November.
    7. Michael F. Bryan & Stephen G. Cecchetti, 1994. "Measuring Core Inflation," NBER Chapters, in: Monetary Policy, pages 195-219, National Bureau of Economic Research, Inc.
    8. Aucremanne, L., 2000. "The Use of Robust Estimators as Measures of Core Inflation," Papers 2, Warwick - Development Economics Research Centre.
    9. Brian Motley, 1997. "Should monetary policy focus on "core" inflation?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue apr18.
    10. Mr. James P Walsh, 2011. "Reconsidering the Role of Food Prices in Inflation," IMF Working Papers 2011/071, International Monetary Fund.
    11. Dospinescu, Andrei Silviu, 2010. "Measuring Core Inflation in Romania Using the Dobrescu Method – A Comparative Approach," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 308-319, July.
    12. Luc Aucremanne, 2000. "The use of robust estimators as measures of core inflation," Working Paper Research 02, National Bank of Belgium.
    13. Stephen G Cecchetti & Richhild Moessner, 2008. "Commodity prices and inflation dynamics," BIS Quarterly Review, Bank for International Settlements, December.
    14. Alan Mankikar & Jo Paisley, 2004. "Core inflation: a critical guide," Bank of England working papers 242, Bank of England.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Salome Tvalodze & Shalva Mkhatrishvili & Tamar Mdivnishvili & Davit Tutberidze & Zviad Zedginidze, 2016. "The National Bank of Georgia's Forecasting and Policy Analysis System," NBG Working Papers 01/2016, National Bank of Georgia.
    2. International Monetary Fund, 2015. "Cross-Country Report on Inflation: Selected Issues," IMF Staff Country Reports 2015/184, International Monetary Fund.
    3. Harry Aginta, 2022. "Spatiotemporal analysis of regional inflation in an emerging country: The case of Indonesia," Regional Science Policy & Practice, Wiley Blackwell, vol. 14(3), pages 667-688, June.
    4. Salome Tvalodze & Shalva Mkhatrishvili & Tamar Mdivnishvili & Davit Tutberidze & Zviad Zedginidze, 2016. "The National Bank of Georgia's Forecasting and Policy Analysis System," NBG Working Papers 01/2016, National Bank of Georgia.
    5. Misati, Roseline Nyakerario & Munene, Olive, 2015. "Second Round Effects And Pass-Through Of Food Prices To Inflation In Kenya," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 3(3), pages 1-13, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mick Silver, 2006. "Core Inflation Measures and Statistical Issues in Choosing Among Them," IMF Working Papers 2006/097, International Monetary Fund.
    2. Julie K. Smith, 2005. "Inflation targeting and core inflation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 38(3), pages 1018-1036, August.
    3. Mr. James P Walsh, 2011. "Reconsidering the Role of Food Prices in Inflation," IMF Working Papers 2011/071, International Monetary Fund.
    4. Juan‐Luis Vega & Mark A. Wynne, 2003. "A First Assessment of Some Measures of Core Inflation for the Euro Area," German Economic Review, Verein für Socialpolitik, vol. 4(3), pages 269-306, August.
    5. Sigal Ribon, 2009. "Core Inflation Indices for Israel," Bank of Israel Working Papers 2009.08, Bank of Israel.
    6. José Manuel Belbute & Leonardo Dia Massala & Júlio António Delgado, 2015. "Assessing core inflation indicators: evidence for Angola," CEFAGE-UE Working Papers 2015_01, University of Evora, CEFAGE-UE (Portugal).
    7. Siami-Namini, Sima & Hudson, Darren & Trindade, A. Alexandre & Lyford, Conrad, 2018. "Commodity Prices, Monetary Policy and the Taylor Rule," 2018 Annual Meeting, February 2-6, 2018, Jacksonville, Florida 266719, Southern Agricultural Economics Association.
    8. Luc Aucremanne & Guy Brys & Peter J Rousseeuw & Anja Struyf & Mia Hubert, 2003. "Inflation, relative prices and nominal rigidities," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 81-105, Bank for International Settlements.
    9. Novikova Natalia & Volkov Dmitry, 2012. "Modelling core inflation in Ukraine in 2003-2012," EERC Working Paper Series 12/12e, EERC Research Network, Russia and CIS.
    10. Joao Ribeiro, 2019. "Inflación de alimentos en Perú: El rol de la política monetaria," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 34(2), pages 81-98, October.
    11. Marlene Amstad & Simon M. Potter & Robert W. Rich, 2017. "The New York Fed Staff Underlying Inflation Gauge (UIG)," Economic Policy Review, Federal Reserve Bank of New York, issue 23-2, pages 1-32.
    12. Juan-Luis Vega & Mark A. Wynne, 2003. "A First Assessment of Some Measures of Core Inflation for the Euro Area," German Economic Review, Verein für Socialpolitik, vol. 4, pages 269-306, August.
    13. Anand, Rahul & Prasad, Eswar S. & Zhang, Boyang, 2015. "What measure of inflation should a developing country central bank target?," Journal of Monetary Economics, Elsevier, vol. 74(C), pages 102-116.
    14. Rahul Anand & Ding Ding & Mr. Volodymyr Tulin, 2014. "Food Inflation in India: The Role for Monetary Policy," IMF Working Papers 2014/178, International Monetary Fund.
    15. Zelda Blignaut & Greg Farrell & Victor Munyama & Logan Rangasamy, 2009. "A Note On The Trimmed Mean Measure Of Core Inflation In South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 77(4), pages 538-552, December.
    16. Jinill Kim & Byung Kwun Ahn, 2012. "A New Measure for Core Inflation Based on Generalized Dynamic-Factor Model," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 18(2), pages 1-28, June.
    17. Šoškić, Dejan, 2015. "Inflation Impact Of Food Prices: Case Of Serbia," Economics of Agriculture, Institute of Agricultural Economics, vol. 62(1), pages 1-11, March.
    18. Amy Higgins & Randal J. Verbrugge, 2015. "Tracking Trend Inflation: Nonseasonally Adjusted Variants of the Median and Trimmed-Mean CPI," Working Papers (Old Series) 1527, Federal Reserve Bank of Cleveland.
    19. Alan K. Detmeister, 2011. "The usefulness of core PCE inflation measures," Finance and Economics Discussion Series 2011-56, Board of Governors of the Federal Reserve System (U.S.).
    20. Franz Ruch & Stan du Plessis, 2015. "SecondRound Effects from Food and Energy Prices an SBVAR approach," Working Papers 7008, South African Reserve Bank.

    More about this item

    Keywords

    core inflation; second round effects; commodity price; autoregressive vector; exchange rate; transmission mechanism; inflation.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rjr:romjef:v::y:2013:i:1:p:98-118. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Corina Saman (email available below). General contact details of provider: https://edirc.repec.org/data/ipacaro.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.