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Food and Energy Prices in Core Inflation

Author

Listed:
  • Jim Lee

    () (Texas A&M University-Corpus Christi)

Abstract

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.

Suggested Citation

  • Jim Lee, 2009. "Food and Energy Prices in Core Inflation," Economics Bulletin, AccessEcon, vol. 29(2), pages 847-860.
  • Handle: RePEc:ebl:ecbull:eb-08e30007
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I2-P34.pdf
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    References listed on IDEAS

    as
    1. Mark A. Wynne, 2008. "Core inflation: a review of some conceptual issues," Review, Federal Reserve Bank of St. Louis, issue May, pages 205-228.
    2. Michael F. Bryan & Stephen G. Cecchetti, 1994. "Measuring Core Inflation," NBER Chapters,in: Monetary Policy, pages 195-219 National Bureau of Economic Research, Inc.
    3. Robert W. Rich & Charles Steindel, 2007. "A comparison of measures of core inflation," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 19-38.
    4. 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.
    5. William T. Gavin & Rachel J. Mandal, 2002. "Predicting inflation: food for thought," The Regional Economist, Federal Reserve Bank of St. Louis, issue Jan., pages 4-9.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    food and energy;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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