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How Useful is Core Inflation for Forecasting Headline Inflation?

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  • Bermingham, Colin

    (Central Bank and Financial Services Authority of Ireland)

Abstract

The paper constructs various core inflation measures. These include various trimmed means using highly disaggregated data and a structural VAR estimate of core inflation for Ireland. The ability of these core inflation measures to forecast future headline inflation is compared using a simple regression model. An ARIMA model fitted to the headline inflation rate is used to construct the benchmark forecast. The forecasts from the ARIMA model are most accurate over short time horizons for monthly data. The structural VAR based estimate is most accurate over longer time horizons. For quarterly data, the structural VAR provides the optimal forecast over all time horizons considered.

Suggested Citation

  • Bermingham, Colin, 2006. "How Useful is Core Inflation for Forecasting Headline Inflation?," Research Technical Papers 11/RT/06, Central Bank of Ireland.
    • Handle: RePEc:cbi:wpaper:11/rt/06
    as

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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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