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Underlying Inflation Measures in Spain

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  • L.J. Álvarez
  • M 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 other economic variables are considered.

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Bibliographic Info

Paper provided by Netherlands Central Bank in its series DNB Staff Reports (discontinued) with number 60.

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Length: 41 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:dnb:staffs:60

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Keywords: core inflation; Spanish inflation; trimmed means; structural VAR; underlying 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, vol. 79(4), pages 655-73, September.
  2. Luis J. Álvarez & Miguel Sebastian, 1995. "La inflación latente en España: una perspectiva macroeconómica," Banco de Espa�a Working Papers 9521, Banco de Espa�a.
  3. Christine Gartner & Gert Wehinger, 1998. "Core Inflation in Selected European Union Countries," Working Papers 33, Oesterreichische Nationalbank (Austrian Central Bank).
  4. Michael F. Bryan & Stephen G. Cecchetti, 1994. "Measuring Core Inflation," NBER Chapters, in: Monetary Policy, pages 195-219 National Bureau of Economic Research, Inc.
  5. John M. Roberts, 1990. "The sources of business cycles: a monetarist interpretation," Working Paper Series / Economic Activity Section 108, Board of Governors of the Federal Reserve System (U.S.).
  6. María de los Llanos Matea, 1992. "Contrastes de raíces unitarias, para series mensuales. Una aplicación al IPC," Banco de Espa�a Working Papers 9214, Banco de Espa�a.
  7. Stephen G. Cecchetti, 1996. "Measuring Short-Run Inflation for Central Bankers," NBER Working Papers 5786, National Bureau of Economic Research, Inc.
  8. Laurence Ball & N. Gregory Mankiw, 1992. "Relative-Price Changes as Aggregate Supply Shocks," NBER Working Papers 4168, National Bureau of Economic Research, Inc.
  9. Oosterhoff, J., 1994. "Trimmed mean or sample median?," Statistics & Probability Letters, Elsevier, vol. 20(5), pages 401-409, August.
  10. Claus, I., 1997. "A Measure of Underlying Inflation in the United States," Working Papers 97-20, Bank of Canada.
  11. Danny Quah & Shaun Vahey, 1995. "Measuring Core Inflation," Bank of England working papers 31, Bank of England.
  12. 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, vol. 15(2), pages 1-26, December.
  13. 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 9415, Banco de Espa�a.
  14. Fisher, L. & Fackler, P. & Orden, D., 1992. "Long-Run Identifying Restrictions for an Error-Correction Model of New Zealand Money, Prices and Output," Papers 92-27, New South Wales - School of Economics.
  15. Víctor Gómez & Agustín Maravall, 1998. "Seasonal Adjustment and Signal Extraction in Economic Time Series," Banco de Espa�a Working Papers 9809, Banco de Espa�a.
  16. Víctor Gómez & Agustín Maravall, 1998. "Seasonal Adjustment and Signal Extraction in Economic Time Series," Banco de Espa�a Working Papers 9809, Banco de Espa�a.
  17. 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 51, Banque de France.
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Citations

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Cited by:
  1. Cotter, John & Dowd, Kevin, 2006. "U.S. Core Inflation: A Wavelet Analysis," MPRA Paper 3520, University Library of Munich, Germany.
  2. 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.
  3. 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, vol. 20(1), pages 33-56, January.
  4. 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 w200005, Banco de Portugal, Economics and Research Department.
  5. Juan-Luis Vega & Mark A. Wynne, 2002. "A first assessment of some measures of core inflation for the euro area," Working Papers 0205, Federal Reserve Bank of Dallas.
  6. Hondroyiannis, George & Papapetrou, Evangelia, 2006. "Stock returns and inflation in Greece: A Markov switching approach," Review of Financial Economics, Elsevier, vol. 15(1), pages 76-94.
  7. 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.
  8. Fethi Ogunc, 2010. "Turkiye'de Islenmemis Gida Enflasyonunda Oynaklik : Durum Tespiti," CBT Research Notes in Economics 1005, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  9. Ariño, Miguel A. & Canela, Miguel A., 2002. "Evolución de la inflación en España," IESE Research Papers D/446, IESE Business School.
  10. Arrazola, Maria & de Hevia, Jose, 2002. "An alternative measure of core inflation," Economics Letters, Elsevier, vol. 75(1), pages 69-73, March.
  11. Robalo Marques, Carlos & Duarte Neves, Pedro & Morais Sarmento, Luis, 2003. "Evaluating core inflation indicators," Economic Modelling, Elsevier, vol. 20(4), pages 765-775, July.
  12. C.K. Folkertsma & K. Hubrich, 2001. "Performance of core inflation measures," DNB Staff Reports (discontinued) 63, Netherlands Central Bank.
  13. 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.
  14. Abdul Aleem & Amine Lahiani, 2011. "Estimation and evaluation of core inflation measures," Applied Economics, Taylor & Francis Journals, vol. 43(25), pages 3619-3629.
  15. 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.

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