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Design and Evaluation of Core Inflation Measures for Turkey

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  • Oguz Atuk
  • Mustafa Utku Ozmen

Abstract

This study analyzes core inflation concept for Turkey from the perspective of design and evaluation. To our best knowledge, this is the first study to evaluate the performance of the core inflation measures for Turkey. We first define and calculate new core inflation indicators using the disaggregated price data for the time period of January 1994 to June 2007. The core inflation measures developed in this paper include weighted median, trimmed mean and volatility-based measures along with the permanent exclusion-based methods. Later, we evaluate the performance of the core inflation measures with regards to pre-defined criteria including unbiasedness, reduced volatility, trend tracking ability and predictive ability. Considering the significant shift in the inflation process in Turkey, we split the sample into two as pre- and post-2003 when evaluating the performance of the core inflation measures. Overall, no single core inflation indicator stands out alone as “the core” and therefore different core measures should be followed simultaneously to get a better understanding of the real trend of inflation and to identify various shocks hitting the inflation. However, limited influence estimators and volatility-based core measures perform relatively better compared to permanent exclusion-based methods. The study also provides an extensive analysis of the distribution of price changes at various aggregation levels.

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Bibliographic Info

Paper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 0903.

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Date of creation: 2009
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Handle: RePEc:tcb:wpaper:0903

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Keywords: Inflation; core inflation; Turkey;

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References

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  1. Jamie Armour, 2006. "An Evaluation of Core Inflation Measures," Working Papers, Bank of Canada 06-10, Bank of Canada.
  2. Cristadoro, Riccardo & Forni, Mario & Reichlin, Lucrezia & Veronese, Giovanni, 2005. "A Core Inflation Indicator for the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 37(3), pages 539-60, June.
  3. Robert Rich & Charles Steindel, 2005. "A review of core inflation and an evaluation of its measures," Staff Reports, Federal Reserve Bank of New York 236, Federal Reserve Bank of New York.
  4. Francisco Marcos Rodrigues Figueiredo, 2001. "Evaluating Core Inflation Measures for Brazil," Working Papers Series, Central Bank of Brazil, Research Department 14, Central Bank of Brazil, Research Department.
  5. Smith, Julie K, 2004. "Weighted Median Inflation: Is This Core Inflation?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 36(2), pages 253-63, April.
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  19. Julie Smith, 2005. "Inflation targeting and core inflation," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 38(3), pages 1018-1036, August.
  20. Pelin Berkmen, 2002. "Measuring Core Inflation for Turkey - Trimmed Means Approach," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 2(2), pages 1-18.
  21. Michael F. Bryan & Stephen G. Cecchetti, 1993. "Measuring Core Inflation," NBER Working Papers 4303, National Bureau of Economic Research, Inc.
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  24. Joanne Cutler, 2001. "Core Inflation in the UK," Discussion Papers, Monetary Policy Committee Unit, Bank of England 03, Monetary Policy Committee Unit, Bank of England.
  25. Hasan Bakhshi & Tony Yates, 1999. "To trim or not to trim? An application of a trimmmed mean inflation estimator to the United Kingdom," Bank of England working papers, Bank of England 97, Bank of England.
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Citations

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Cited by:
  1. Oguz Atuk & M. Utku Ozmen & Necati Tekatli, 2011. "Cekirdek Enflasyon Gostergelerinin Kullanimi Uzerine Bir Degerlendirme," CBT Research Notes in Economics, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 1101, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  2. M. Utku Ozmen & Orhun Sevinc, 2011. "Price Rigidity In Turkey : Evidence From Micro Data," Working Papers, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 1125, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  3. Orhun Sevinc, 2012. "Enflasyon Ana Egiliminin Temel Bilesenler Analiziyle Incelenmesi," CBT Research Notes in Economics, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 1208, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.

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