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A statistical measure of core inflation

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Author Info
Meyler, Aidan

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Abstract

This paper examines alternative statistically-based measures of core inflation in Ireland over the period 1976-1999. A highly disaggregated (approximately 500 price series) dataset from the Irish HICP is used. The distribution of quarterly price changes is shown, in common with other international studies, to be highly kurtotic (i.e., fat-tailed) and right skewed. This would suggest there is considerable ‘statistical noise’ in the measured inflation rate, motivating the use of ‘limited influence’ estimators of central tendency over the mean measure on the grounds of statistical efficiency. It is found that even a relatively small amount of trim from both ends of the distribution of price changes results in considerable improvement in root mean square error (RMSE) relative to a benchmark measure of core inflation. This improvement is even larger when monthly data are examined.

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File URL: http://mpra.ub.uni-muenchen.de/11362/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11362.

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Date of creation: Apr 1999
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Publication status: Published in Central Bank and Financial Services Authority of Ireland Technical Paper Series 2/RT/1999.1999(1999): pp. 1-43
Handle: RePEc:pra:mprapa:11362

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Related research
Keywords: core inflation; trimmed mean; Ireland;

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Find related papers by JEL classification:
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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. Nathan S. Balke & Mark A. Wynne, 1996. "Supply shocks and the distribution of price changes," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q I, pages 10-18. [Downloadable!]
  2. Michael F. Bryan & Stephen G. Cecchetti & Rodney L. Wiggins II, 1997. "Efficient Inflation Estimation," NBER Working Papers 6183, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Meyler, Aidan & Kenny, Geoff & Quinn, Terry, 1998. "Forecasting irish inflation using ARIMA models," MPRA Paper 11359, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  4. Danny Quah & Shaun Vahey, . "Measuring Core Inflation," Bank of England working papers 31, Bank of England.
    Other versions:
  5. Clements, Kenneth W & Izan, H Y, 1987. "The Measurement of Inflation: A Stochastic Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(3), pages 339-50, July.
  6. Ball, Laurence & Mankiw, N Gregory, 1995. "Relative-Price Changes as Aggregate Supply Shocks," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 161-93, February. [Downloadable!] (restricted)
    Other versions:
  7. Stephen G. Cecchetti, 1997. "Measuring short-run inflation for central bankers," Review, Federal Reserve Bank of St. Louis, issue May, pages 143-155. [Downloadable!]
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  8. Bryan, Michael-F & Cecchetti, Stephen-G, 1999. "The Monthly Measurement of Core Inflation in Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(1), pages 77-101, May. [Downloadable!]
  9. Jonathan Kearns, 1998. "The Distribution and Measurement of Inflation," RBA Research Discussion Papers rdp9810, Reserve Bank of Australia. [Downloadable!]
  10. Michael F. Bryan & Stephen G. Cecchetti, 1999. "Inflation And The Distribution Of Price Changes," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 188-196, May. [Downloadable!] (restricted)
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  11. Thérèse Laflèche, 1997. "Statistical measures of the trend rate of inflation," Bank of Canada Review, Bank of Canada, vol. 1997(Autumn), pages 29-47. [Downloadable!]
  12. 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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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. Juan-Luis Vega & Mark A. Wynne, 2002. "A first assessment of some measures of core inflation for the euro area," Working Papers 02 05, Federal Reserve Bank of Dallas. [Downloadable!]
    Other versions:
  2. Luc Aucremanne & Guy Brys & Mia Hubert & Peter J. Rousseeuw & Anja Struyf, 2002. "Inflation, relative prices and nominal rigidities," Research series 200205-1, National Bank of Belgium. [Downloadable!]
    Other versions:
  3. Juan Luis Vega-Croissier & Mark A. Wynne, 2001. "An evaluation of some measures of core inflation for the euro area," Working Paper Series 053, European Central Bank. [Downloadable!]
  4. L. Aucremanne, 2001. "The use of Robust Estimators as Measures of Core Inflation," DNB Staff Reports (discontinued) 61, Netherlands Central Bank. [Downloadable!]
  5. Luc Aucremanne, 2000. "The use of robust estimators as measures of core inflation," Research series 200003-2, National Bank of Belgium. [Downloadable!]
  6. Colin Bermingham, 2007. "How Useful is Core Inflation for Forecasting Headline Inflation?," The Economic and Social Review, Economic and Social Studies, vol. 38(3), pages 355–377. [Downloadable!]
  7. Bermingham, Colin, 2006. "How Useful is Core Inflation for Forecasting Headline Inflation?," Research Technical Papers 11/RT/06, Central Bank & Financial Services Authority of Ireland (CBFSAI). [Downloadable!]
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