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Underlying Inflation Measures in Spain

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  • Luis J. Álvarez
  • María de los Llanos Matea

Abstract

Applying the concept of underlying inflation can be thought of as an attempt to capture the general trend in inflation more accurately than with readily available data on headline inflation. In this paper a number of approaches to the analysis of underlying inflation are examined from a unifying standpoint, stressing their complementary nature, and empirical results are presented for the Spanish economy. Different measures differ from each other in the information set which is considered to be relevant for estimating the underlying rate of inflation. We first examine the simplest of the procedures that amounts to ignoring price developments in the most volatile sub-components of the CPI and then consider limited-influence estimators that take advantage of the information contained in the cross-sectional distribution of individual prices. Statistical methods of extracting the trend component of inflation are also discussed. Finally, measures that allow for the interplay of are other economic variables considered.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/99/Fic/dt9911e.pdf
File Function: First version, 1999
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 9911.

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Length: 46 pages
Date of creation: 1999
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Handle: RePEc:bde:wpaper:9911

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Keywords: Inflation measures; underlying inflation; limited-influence estimators; permanent inflation;

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References

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  1. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, American Economic Association, vol. 79(4), pages 655-73, September.
  2. John M. Roberts, 1990. "The sources of business cycles: a monetarist interpretation," Working Paper Series / Economic Activity Section, Board of Governors of the Federal Reserve System (U.S.) 108, Board of Governors of the Federal Reserve System (U.S.).
  3. Fisher, L. & Fackler, P. & Orden, D., 1992. "Long-Run Identifying Restrictions for an Error-Correction Model of New Zealand Money, Prices and Output," Papers, New South Wales - School of Economics 92-27, New South Wales - School of Economics.
  4. Víctor Gómez & Agustín Maravall, 1998. "Seasonal Adjustment and Signal Extraction in Economic Time Series," Banco de Espa�a Working Papers, Banco de Espa�a 9809, Banco de Espa�a.
  5. Ball, Laurence & Mankiw, N Gregory, 1995. "Relative-Price Changes as Aggregate Supply Shocks," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(1), pages 161-93, February.
  6. Luis J. Álvarez & Miguel Sebastian, 1995. "La inflación latente en España: una perspectiva macroeconómica," Banco de Espa�a Working Papers, Banco de Espa�a 9521, Banco de Espa�a.
  7. Jacquinot, P., 1998. "L'inflation sous-jacente à partir d'une approche structurelle des VAR : Une application à la France, l'Allemagne et au Royaume-Uni," Working papers, Banque de France 51, Banque de France.
  8. Stephen G. Cecchetti, 1997. "Measuring short-run inflation for central bankers," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue May, pages 143-155.
  9. Shiratsuka, Shigenori, 1997. "Inflation Measures for Monetary Policy: Measuring the Underlying Inflation Trend and Its Implication for Monetary Policy Implementation," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, Institute for Monetary and Economic Studies, Bank of Japan, vol. 15(2), pages 1-26, December.
  10. Claus, I., 1997. "A Measure of Underlying Inflation in the United States," Working Papers, Bank of Canada 97-20, Bank of Canada.
  11. Michael F. Bryan & Stephen G. Cecchetti, 1994. "Measuring Core Inflation," NBER Chapters, National Bureau of Economic Research, Inc, in: Monetary Policy, pages 195-219 National Bureau of Economic Research, Inc.
  12. Oosterhoff, J., 1994. "Trimmed mean or sample median?," Statistics & Probability Letters, Elsevier, Elsevier, vol. 20(5), pages 401-409, August.
  13. Christine Gartner & Gert Wehinger, 1998. "Core Inflation in Selected European Union Countries," Working Papers, Oesterreichische Nationalbank (Austrian Central Bank) 33, Oesterreichische Nationalbank (Austrian Central Bank).
  14. Danny Quah & Shaun Vahey, 1995. "Measuring Core Inflation," Bank of England working papers, Bank of England 31, Bank of England.
  15. Víctor Gómez & Agustín Maravall, 1998. "Seasonal Adjustment and Signal Extraction in Economic Time Series," Banco de Espa�a Working Papers, Banco de Espa�a 9809, Banco de Espa�a.
  16. María de los Llanos Matea, 1992. "Contrastes de raíces unitarias, para series mensuales. Una aplicación al IPC," Banco de Espa�a Working Papers, Banco de Espa�a 9214, Banco de Espa�a.
  17. María de los Llanos Matea & Ana Valentina Regil, 1994. "Métodos para la extracción de señales y para la trimestralización," Banco de Espa�a Working Papers, Banco de Espa�a 9415, Banco de Espa�a.
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Citations

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Cited by:
  1. Smith, Julie K, 2004. "Weighted Median Inflation: Is This Core Inflation?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 36(2), pages 253-63, April.
  2. Hondroyiannis, George & Papapetrou, Evangelia, 2006. "Stock returns and inflation in Greece: A Markov switching approach," Review of Financial Economics, Elsevier, Elsevier, vol. 15(1), pages 76-94.
  3. Juan-Luis Vega & Mark A. Wynne, 2002. "A first assessment of some measures of core inflation for the euro area," Working Papers, Federal Reserve Bank of Dallas 0205, Federal Reserve Bank of Dallas.
  4. Arrazola, Maria & de Hevia, Jose, 2002. "An alternative measure of core inflation," Economics Letters, Elsevier, Elsevier, vol. 75(1), pages 69-73, March.
  5. Luc Aucremanne & Guy Brys & Peter J Rousseeuw & Anja Struyf & Mia Hubert, 2003. "Inflation, relative prices and nominal rigidities," BIS Papers chapters, Bank for International Settlements, in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 81-105 Bank for International Settlements.
  6. Dowd, Kevin & Cotter, John & Loh, Lixia, 2011. "U.S. Core Inflation: A Wavelet Analysis," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 15(04), pages 513-536, September.
  7. María Ángeles Caraballo & Carlos Usabiaga, 2003. "Análisis de la estructura de la inflación de las regiones españolas: La metodología de Ball y Mankiw," Economic Working Papers at Centro de Estudios Andaluces E2003/44, Centro de Estudios Andaluces.
  8. Mio, Hitoshi, 2002. "Identifying Aggregate Demand and Aggregate Supply Components of Inflation Rate: A Structural Vector Autoregression Analysis for Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(1), pages 33-56, January.
  9. Carlos Robalo Marques & Pedro Duarte Neves & Afonso Gonçalves da Silva, 2000. "Why Should Central Banks Avoid the Use of the Underlying Inflation Indicator?," Working Papers, Banco de Portugal, Economics and Research Department w200005, Banco de Portugal, Economics and Research Department.
  10. Ariño, Miguel A. & Canela, Miguel A., 2002. "Evolución de la inflación en España," IESE Research Papers, IESE Business School D/446, IESE Business School.
  11. Abdul Aleem & Amine Lahiani, 2011. "Estimation and evaluation of core inflation measures," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 43(25), pages 3619-3629.
  12. Gagik G. Aghajanyan, 2005. "Core inflation in a small transition country: choice of optimal measures," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 2(1), pages 83-110, June.
  13. Fethi Ogunc, 2010. "Turkiye'de Islenmemis Gida Enflasyonunda Oynaklik : Durum Tespiti," CBT Research Notes in Economics, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 1005, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  14. 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, Banco de Portugal, Economics and Research Department.
  15. C.K. Folkertsma & K. Hubrich, 2001. "Performance of core inflation measures," DNB Staff Reports (discontinued), Netherlands Central Bank 63, Netherlands Central Bank.

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