Underlying Inflation in Australia: Are the Existing Measures Satisfactory?
AbstractAlong with a number of other central banks around the world the Reserve Bank of Australia has quite explicitly adopted an inflation target. Both the Bank and the Australian Government’s statistical agency (the Australian Bureau of Statistics) report various measures of the underlying rate of inflation. The aim of this paper is to formulate criteria which an acceptable underlying rate must satisfy and then test to see whether either individually or in combination any of the current (CPI Excluding volatile items; CPI Market prices excluding volatile items; Weighted median and; Trimmed mean) or recently discarded (the Treasury underlying rate) measures of underlying inflation satisfy these criteria. We find that for the period since inflation targeting began (in 1993) none of these underlying series satisfy all of the criteria we propose but that one series (the RBA’s Trimmed mean series) does satisfy the sub-set which we refer to as our ‘necessary criteria’. We then examine the results of an ‘Unobserved Components’ decomposition and argue that it provides useful information on underlying inflation in Australia. JEL Codes E31, C4 Keywords:
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Bibliographic InfoPaper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 878.
Length: 41 pages
Date of creation: 2003
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Other versions of this item:
- Robert Dixon & G.C. Lim, 2004. "Underlying Inflation in Australia: Are the Existing Measures Satisfactory?," The Economic Record, The Economic Society of Australia, vol. 80(251), pages 373-386, December.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
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