Food and Energy Prices in Core Inflation
Many central bankers have made monetary policy decisions by focusing on core inflation data that exclude food and energy prices from overall inflation. In this paper, estimation results from multivariate GARCH models show that food prices not only help forecast future core inflation, but their conditional variance also affects the conditional variance of core inflation. Energy prices, on the other hand, affect core inflation primarily through the GARCH-in-mean effect. To the extent that food and energy prices affect the underlying trend and volatility of overall inflation, policymakers should not ignore these components in their assessment of future inflation risk.
Volume (Year): 29 (2009)
Issue (Month): 2 ()
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- Mark A. Wynne, 2008.
"Core inflation: a review of some conceptual issues,"
Federal Reserve Bank of St. Louis, issue May, pages 205-228.
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- Robert J. Gordon, 1975. "Alternative Responses of Policy to External Supply Shocks," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(1), pages 183-206. Full references (including those not matched with items on IDEAS)
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