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Evaluating Core Inflation

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Author Info

  • C.R. Marques
  • P.D. Neves
  • L.M. Sarmento

Abstract

This paper proposes testable conditions that core inflation measures should satisfy. Trend inflation indicators calculated by Banco de Portugal are tested against this background. The major conclusion is that the so-called "underlying inflation", the "10% trimmed mean", and the "25% trimmed mean" do not meet the proposed conditions. However, they are satisfied by the "37-month centred moving average", the "first principal component" and the "standard deviation weighted CPI" indicators. Yet, only the last two indicators can be used as useful core inflation measures, as the first one is not computable in real time.

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File URL: http://www.dnb.nl/binaries/sr066_tcm46-146843.pdf
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Bibliographic Info

Paper provided by Netherlands Central Bank in its series DNB Staff Reports (discontinued) with number 66.

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Length: 20 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:dnb:staffs:66

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Related research

Keywords: core inflation measures; trimmed mean;

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References

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  1. Freeman, Donald G., 1998. "Do core inflation measures help forecast inflation?," Economics Letters, Elsevier, vol. 58(2), pages 143-147, February.
  2. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  3. Michael F. Bryan & Stephen G. Cecchetti & Rodney L. Wiggins II, 1997. "Efficient Inflation Estimation," NBER Working Papers 6183, National Bureau of Economic Research, Inc.
  4. Thérèse Laflèche, 1997. "Statistical measures of the trend rate of inflation," Bank of Canada Review, Bank of Canada, vol. 1997(Autumn), pages 29-47.
  5. Stephen G. Cecchetti, 1996. "Measuring Short-Run Inflation for Central Bankers," NBER Working Papers 5786, National Bureau of Economic Research, Inc.
  6. Michael F. Bryan & Stephen G. Cecchetti, 1994. "Measuring Core Inflation," NBER Chapters, in: Monetary Policy, pages 195-219 National Bureau of Economic Research, Inc.
  7. Mark A. Wynne, 1999. "Core inflation: a review of some conceptual issues," Working Papers 9903, Federal Reserve Bank of Dallas.
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Cited by:
  1. Alan Mankikar & Jo Paisley, 2004. "Core inflation: a critical guide," Bank of England working papers 242, Bank of England.
  2. Mick Silver, 2006. "Core Inflation Measures and Statistical Issues in Choosing Among them," IMF Working Papers 06/97, International Monetary Fund.

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