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Evaluating core inflation indicators

  • Robalo Marques, Carlos
  • Duarte Neves, Pedro
  • Morais Sarmento, Luis

This paper proposes testable conditions that core inflation measures should satisfy. Trend inflation indicators calculated by Banco de Portugal are tested against this background. The major conclusion is that the so-called “underlying inflation”, the “10% trimmed mean”, and the “25% trimmed mean” do not meet the proposed conditions. However, they are satisfied by the “37-month centred moving average”, the “first principal component” and the “standard deviation weighted CPI” indicators. Yet, only the last two indicators can be used as useful core inflation measures, as the first one is not computable in real time.

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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 20 (2003)
Issue (Month): 4 (July)
Pages: 765-775

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Handle: RePEc:eee:ecmode:v:20:y:2003:i:4:p:765-775
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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  1. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 293-335, October.
  2. Wynne, Mark A., 1999. "Core inflation: a review of some conceptual issues," Working Paper Series 0005, European Central Bank.
  3. חנה וייל, 1995. "סיעוד במגזר הערבי," Working Papers 397, National Insurance Institute of Israel.
  4. Danny Quah & Shaun Vahey, 1995. "Measuring Core Inflation," Bank of England working papers 31, Bank of England.
  5. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  6. Christine Gartner & Gert Wehinger, 1998. "Core Inflation in Selected European Union Countries," Working Papers 33, Oesterreichische Nationalbank (Austrian Central Bank).
  7. דר עמנואל חיגר, 1999. "חינוך מיני לנוער חרש," Working Papers 178, National Insurance Institute of Israel.
  8. Stephen G. Cecchetti, 1996. "Measuring Short-Run Inflation for Central Bankers," NBER Working Papers 5786, National Bureau of Economic Research, Inc.
  9. אסתר טולידנו, 1999. "מקבלי דמי אבטלה בשנת 1998," Working Papers 385, National Insurance Institute of Israel.
  10. דר אברהם כרמלי & גב נעמה שמיר וגב לילי יצחקי, 1999. "מתחברים לנוער מנותק," Working Papers 191, National Insurance Institute of Israel.
  11. אסתר טולידנו, 1995. "מקבלי דמי אבטלה בשנת 1994," Working Papers 444, National Insurance Institute of Israel.
  12. Freeman, Donald G., 1998. "Do core inflation measures help forecast inflation?," Economics Letters, Elsevier, vol. 58(2), pages 143-147, February.
  13. Michael F. Bryan & Stephen G. Cecchetti, 1994. "Measuring Core Inflation," NBER Chapters, in: Monetary Policy, pages 195-219 National Bureau of Economic Research, Inc.
  14. אסתר טולדנו, 1997. "מקבלי דמי אבטלה בשנת 1996," Working Papers 521, National Insurance Institute of Israel.
  15. Carlos Robalo Marques & Pedro Duarte Neves & Luís Morais Sarmento, 2000. "Evaluating Core Inflation Indicators," Working Papers w200003, Banco de Portugal, Economics and Research Department.
  16. L.J. �lvarez & M de los Llanos Matea, 2001. "Underlying Inflation Measures in Spain," DNB Staff Reports (discontinued) 60, Netherlands Central Bank.
  17. Fischer, Andreas M, 1989. "Unit Roots and Survey Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(4), pages 451-63, November.
  18. Thérèse Laflèche, 1997. "Statistical measures of the trend rate of inflation," Bank of Canada Review, Bank of Canada, vol. 1997(Autumn), pages 29-47.
  19. Le Bihan, Herve & Sedillot, Franck, 2000. "Do core inflation measures help forecast inflation?: Out-of-sample evidence from French data," Economics Letters, Elsevier, vol. 69(3), pages 261-266, December.
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