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Examining the Ability of Core Inflation to Capture the Overall Trend of Total Inflation

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  • Tierney, Heather L.R.

Abstract

This paper examines whether core inflation is able to predict the overall trend of total inflation using real-time data in a parametric and nonparametric framework. Specifically, two sample periods and five in-sample forecast horizons in two measures of inflation, which are the personal consumption expenditure and the consumer price index, are used in the exclusions-from core inflation persistence model. This paper finds that core inflation is only able to capture the overall trend of total inflation for the twelve-quarter in-sample forecast horizon using the consumer price index in both the parametric and nonparametric models in the longer sample period. The nonparametric model outperforms the parametric model for both data samples and for all five in-sample forecast horizons.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 22409.

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Date of creation: Aug 2009
Date of revision: Feb 2010
Handle: RePEc:pra:mprapa:22409

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Keywords: Inflation Persistence; Real-Time Data; Monetary Policy; Nonparametrics; In-Sample Forecasting;

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References

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Cited by:
  1. Tierney, Heather L.R., 2013. "Forecasting and Tracking Real-Time Data Revisions in Inflation Persistence," MPRA Paper 53374, University Library of Munich, Germany, revised Nov 2013.

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