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The Recent Performance of the Traditional Measure of Core Inflation in G7 Countries

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  • Luciana Lo Bue

    ()

  • Antonio Ribba

    ()

Abstract

In this paper we undertake an empirical investigation concerning the performance of the traditional measure of core inflation in recent years. We consider the group of G7 countries and explore both the high-frequency and the low-frequency relations between overall inflation and core inflation. We find that the traditional core measure, obtained by subtracting from the overall index those components which exhibit high volatility and which are responsible for the short-run variability of inflation, is a reliable indicator of trend inflation for a group of countries including the USA, Canada and Japan. The innovation accounting shows that for the three countries the transitory shock, i.e. the total inflation shock, has limited persistence and hence there is a relatively quick convergence of overall inflation to its trend component.

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Bibliographic Info

Paper provided by University of Modena and Reggio E., Dept. of Economics in its series Center for Economic Research (RECent) with number 037.

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Length: pages 27
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:mod:recent:037

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Web page: http://www.recent.unimore.it/
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Related research

Keywords: Core Inflation Indicator; Structural Cointegrated VARs; Permanent-transitory Decompositions;

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