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Statistical measures of the trend rate of inflation

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Abstract

As a guide for the conduct of monetary policy, most central banks make use of a trend inflation index similar to that employed by the Bank of Canada: the CPI excluding food, energy, and the effect of indirect taxes. In addition to their basic reference index, some central banks regularly publish statistical measures of the trend rate of inflation. The method used for producing these measures is, for the most part, based on the hypothesis that extreme price fluctuations generally reflect temporary shocks to the inflation rate, rather than its underlying trend. In this paper, the author offers a broad survey of studies on the measurement of trend inflation that have been published by the Bank of Canada and presents the results of the most recent work on the subject. Particular attention is paid to two statistical measures that the Bank follows more closely than other measures; namely, the CPIX, a price index that excludes eight of the most volatile CPI components, and CPIW, a measure that retains all the components of the overall index but gives a lower weighting to the most volatile.

Suggested Citation

  • Thérèse Laflèche, 1997. "Statistical measures of the trend rate of inflation," Bank of Canada Review, Bank of Canada, vol. 1997(Autumn), pages 29-47.
  • Handle: RePEc:bca:bcarev:v:1997:y:1997:i:autumn97:p:29-47
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    Citations

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    Cited by:

    1. Mick Silver, 2006. "Core Inflation Measures and Statistical Issues in Choosing Among Them," IMF Working Papers 06/97, International Monetary Fund.
    2. Scott Roger, 1998. "Core inflation: concepts, uses and measurement," Reserve Bank of New Zealand Discussion Paper Series G98/9, Reserve Bank of New Zealand.
    3. C.R. Marques & P.D. Neves & L.M. Sarmento, 2001. "Evaluating Core Inflation," DNB Staff Reports (discontinued) 66, Netherlands Central Bank.
    4. L. Aucremanne, 2001. "The use of Robust Estimators as Measures of Core Inflation," DNB Staff Reports (discontinued) 61, Netherlands Central Bank.
    5. Oguz Atuk & Mustafa Utku Ozmen, 2009. "Design and Evaluation of Core Inflation Measures for Turkey," Working Papers 0903, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    6. Robalo Marques, Carlos & Duarte Neves, Pedro & Morais Sarmento, Luis, 2003. "Evaluating core inflation indicators," Economic Modelling, Elsevier, vol. 20(4), pages 765-775, July.
    7. Gomez, Miguel I. & Gonzalez, Eliana & Melo, Luis F. & Torres, Jose L., 2006. "Forecasting Food Price Inflation, Challenges for Central Banks in Developing Countries using an Inflation Targeting Framework: the Case of Colombia," 2006 Annual meeting, July 23-26, Long Beach, CA 21181, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    8. Meyler, Aidan, 1999. "A statistical measure of core inflation," MPRA Paper 11362, University Library of Munich, Germany.
    9. Baqaee, David, 2010. "Using wavelets to measure core inflation: The case of New Zealand," The North American Journal of Economics and Finance, Elsevier, vol. 21(3), pages 241-255, December.
    10. Souvik Gupta & Magnus Saxegaard, 2009. "Measures of Underlying Inflation in Sri Lanka," IMF Working Papers 09/167, International Monetary Fund.
    11. Landau, Bettina, 2000. "Core inflation rates: a comparison of methods based on west German data," Discussion Paper Series 1: Economic Studies 2000,04, Deutsche Bundesbank.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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