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Performance of core inflation measures

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Author Info
C.K. Folkertsma
K. Hubrich

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Abstract

This paper assesses the performance of core inflation measures based on the structural VAR approach. Since core or monetary inflation is not directly observable, we develop a monetary general equilibrium model that fits real aggregated European data and use this model to generate time series for headline as well as core inflation. For five different schemes which attempt to identify core inflation within a VAR framework it is investigated whether the estimated core inflation series recover the true series sufficiently precise in order to be useful for monetary policy.

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Publisher Info
Paper provided by Netherlands Central Bank in its series DNB Staff Reports (discontinued) with number 63.

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Length: 55 pages
Date of creation: 2001
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Handle: RePEc:dnb:staffs:63

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Related research
Keywords: SVAR-models core inflation stochastic general equilibrium model Monte-Carlo simulation

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Find related papers by 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
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods

References listed on IDEAS
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.:

  1. Mark A. Wynne, 1999. "Core inflation: a review of some conceptual issues," Working Paper Series 5, European Central Bank. [Downloadable!]
    Other versions:
  2. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October. [Downloadable!] (restricted)
  3. John B. Taylor, 1980. "Aggregate Dynamics and Staggered Contracts," NBER Reprints 0126, National Bureau of Economic Research, Inc.
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  4. Faust, Jon & Leeper, Eric M, 1997. "When Do Long-Run Identifying Restrictions Give Reliable Results?," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(3), pages 345-53, July.
    Other versions:
  5. Canova, Fabio & Pina, Joaquim Pivis, 1999. "Monetary Policy Misspecification in VAR Models," CEPR Discussion Papers 2333, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Runkle, David E, 1987. "Vector Autoregressions and Reality," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(4), pages 437-42, October.
  7. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September. [Downloadable!] (restricted)
  8. 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.).
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    Other versions:
  10. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2000. "Sticky Price Models of the Business Cycle: Can the Contract Multiplier Solve the Persistence Problem?," Econometrica, Econometric Society, vol. 68(5), pages 1151-1180, September.
    Other versions:
  11. Michael F. Bryan & Stephen G. Cecchetti, 1993. "The consumer price index as a measure of inflation," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 15-24. [Downloadable!]
    Other versions:
  12. Luis J. Álvarez & María de los Llanos Matea, 1999. "Underlying Inflation Measures in Spain," Banco de España Working Papers 9911, Banco de España. [Downloadable!]
  13. C.C.A. Winder, 1997. "On the construction of European area-wide aggregates: a review of the issues and empirical evidence," WO Research Memoranda (discontinued) 499, Netherlands Central Bank, Research Department.
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    Other versions:
  15. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-44, September. [Downloadable!] (restricted)
    Other versions:
  16. Julio J. Rotemberg & Michael Woodford, 1998. "Interest-Rate Rules in an Estimated Sticky Price Model," NBER Working Papers 6618, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Schwert, G William, 1989. "Tests for Unit Roots: A Monte Carlo Investigation," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(2), pages 147-59, April.
    Other versions:
  18. David E. Runkle, 1987. "Vector autoregressions and reality," Staff Report 107, Federal Reserve Bank of Minneapolis. [Downloadable!]
  19. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity effects and the monetary transmission mechanism," Staff Report 150, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  20. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Monetary Policy Shocks: What Have We Learned and to What End?," NBER Working Papers 6400, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  21. Kirstin Hubrich & Helmut Lütkepohl & Pentti Saikkonen, 2001. "A Review Of Systems Cointegration Tests," Econometric Reviews, Taylor and Francis Journals, vol. 20(3), pages 247-318. [Downloadable!] (restricted)
    Other versions:
  22. Warne, A., 1993. "A Common Trends Model: Identification, Estimation and Inference," Papers 555, Stockholm - International Economic Studies.
  23. Luis J. Álvarez & María de los Llanos Matea, 1999. "Underlying Inflation Measures in Spain," Banco de España Working Papers 9911, Banco de España. [Downloadable!]
  24. Fisher, Lance A. & Fackler, Paul L. & Orden, David, 1995. "Long-run identifying restrictions for an error-correction model of New Zealand money, prices and output," Journal of International Money and Finance, Elsevier, vol. 14(1), pages 127-147, February. [Downloadable!] (restricted)
  25. 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. [Downloadable!] (restricted)
    Other versions:
  26. Diewert, W.E., 1995. "On the Stochastic Approach to Index Numbers," UBC Departmental Archives 95-31, UBC Department of Economics.
  27. McCallum, Bennett T., 1986. "Some issues concerning interest rate pegging, price level determinacy, and the real bills doctrine," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 135-160, January. [Downloadable!] (restricted)
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  28. repec:cup:etheor:v:11:y:1995:i:5:p:1015-32 is not listed on IDEAS
  29. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
    Other versions:
  30. C. K. Folkertsma, 2000. "Liquidity effects and the welfare costs of inflation in an endogenous growth model," WO Research Memoranda (discontinued) 607, Netherlands Central Bank, Research Department. [Downloadable!]
  31. C.K. Folkertsma, 2000. "Liquidity Effects and Welfare Costs of Inflation in an EndogenousGrowth Model," DNB Staff Reports (discontinued) 54, Netherlands Central Bank. [Downloadable!]
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  33. Christine Gartner & Gert Wehinger, 1998. "Core Inflation in Selected European Union Countries," Working Papers 33, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
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Full references

Cited by:
(explanations, 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.)

  1. Mick Silver, 2006. "Core Inflation Measures and Statistical Issues in Choosing Among Them," IMF Working Papers 06/97, International Monetary Fund. [Downloadable!]
  2. Nicholas Apergis & Stephen M. Miller & Alexandros Panethimitakis & Athanasios Vamvakidis, 2005. "Inflation Targeting and Output Growth: Empirical Evidence for the European Union," IMF Working Papers 05/89, International Monetary Fund. [Downloadable!]
  3. Riccardo Cristadoro & Mario Forni & Lucrezia Reichlin & Giovanni Veronese, 2001. "A core inflation index for the euro area," Temi di discussione (Economic working papers) 435, Bank of Italy, Economic Research Department. [Downloadable!]
    Other versions:
  4. Joanne Cutler, 2001. "Core Inflation in the UK," Discussion Papers 03, Monetary Policy Committee Unit, Bank of England. [Downloadable!]
  5. Nicholas Apergis & Stephen M. Miller & Alexandros Panethimitakis & Athanassios Vamvakidis, 2005. "Inflation Targeting and Output Growth: Evidence from Aggregate European Data," Working papers 2005-06, University of Connecticut, Department of Economics. [Downloadable!]
  6. Alan Mankikar & Jo Paisley, . "Core inflation: a critical guide," Bank of England working papers 242, Bank of England. [Downloadable!]
  7. Emil Stavrev, 2006. "Measures of Underlying Inflation in the Euro Area: Assessment and Role for Informing Monetary Policy," IMF Working Papers 06/197, International Monetary Fund. [Downloadable!]
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