IDEAS home Printed from https://ideas.repec.org/a/eso/journl/v38y2007i3p355-377.html
   My bibliography  Save this article

How Useful is Core Inflation for Forecasting Headline Inflation?

Author

Listed:
  • Colin Bermingham

    (Central Bank and Financial Services Authority of Ireland, Dublin)

Abstract

The paper constructs various core inflation measures. These include various trimmed means using disaggregated data and a structural VAR estimate of core inflation for Ireland. The ability of these core inflation measures to forecast future headline inflation is compared using a regression model. An ARIMA model fitted to the headline inflation rate is used as the benchmark forecast. The forecasts from the ARIMA model are most accurate over short time horizons for monthly data. The structural VAR based estimate is most accurate over longer time horizons. For quarterly data, the structural VAR provides the optimal forecast over all time horizons.

Suggested Citation

  • Colin Bermingham, 2007. "How Useful is Core Inflation for Forecasting Headline Inflation?," The Economic and Social Review, Economic and Social Studies, vol. 38(3), pages 355-377.
    • Handle: RePEc:eso:journl:v:38:y:2007:i:3:p:355-377
    as

    Download full text from publisher

    File URL: http://www.esr.ie/Vol38_3/04%20Vol%2038%20Bermingham.pdf
    File Function: First version, 2007
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
    2. Seamus Hogan & Marianne Johnson & Thérèse Laflèche, 2001. "Core Inflation," Technical Reports 89, Bank of Canada.
    3. Iris Claus, 1997. "A Measure of Underlying Inflation in the United States," Staff Working Papers 97-20, Bank of Canada.
    4. Todd E. Clark, 2001. "Comparing measures of core inflation," Economic Review, Federal Reserve Bank of Kansas City, vol. 86(Q II), pages 5-31.
    5. Hilde Christiane Bjørnland, 2001. "Identifying domestic and imported core inflation," Applied Economics, Taylor & Francis Journals, vol. 33(14), pages 1819-1831.
    6. Meyler, Aidan, 1999. "A statistical measure of core inflation," MPRA Paper 11362, University Library of Munich, Germany.
    7. Jonathan Kearns, 1998. "The Distribution and Measurement of Inflation," RBA Research Discussion Papers rdp9810, Reserve Bank of Australia.
    8. Stephen G. Cecchetti, 1997. "Measuring short-run inflation for central bankers," Review, Federal Reserve Bank of St. Louis, issue May, pages 143-155.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fulli-Lemaire, Nicolas & Palidda, Ernesto, 2012. "Swapping Headline for Core Inflation: An Asset Liability Management Approach," MPRA Paper 42853, University Library of Munich, Germany, revised 16 Nov 2012.
    2. Jose Luis Nolazco & Pablo Pincheira & Jorge Selaive, 2016. "The evasive predictive ability of core inflation," Working Papers 15/34, BBVA Bank, Economic Research Department.
    3. Bermingham, Colin, 2008. "Quantifying the Impact of Oil Prices on Inflation," Research Technical Papers 8/RT/08, Central Bank of Ireland.
    4. Pablo Pincheira-Brown & Andrea Bentancor & Nicolás Hardy, 2023. "An Inconvenient Truth about Forecast Combinations," Mathematics, MDPI, vol. 11(18), pages 1-24, September.
    5. Pincheira-Brown, Pablo & Selaive, Jorge & Nolazco, Jose Luis, 2019. "Forecasting inflation in Latin America with core measures," International Journal of Forecasting, Elsevier, vol. 35(3), pages 1060-1071.
    6. Pincheira, Pablo & Hardy, Nicolas, 2022. "Correlation Based Tests of Predictability," MPRA Paper 112014, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bermingham, Colin, 2006. "How Useful is Core Inflation for Forecasting Headline Inflation?," Research Technical Papers 11/RT/06, Central Bank of Ireland.
    2. Jamie Armour, 2006. "An Evaluation of Core Inflation Measures," Staff Working Papers 06-10, Bank of Canada.
    3. 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.
    4. Martha Misas Arango & Enrique López Enciso & Juana Téllez Corredor & José Fernando Escobar, 2005. "La Inflación Subyacente en Colombia: Un Enfoque de Tendencias Estocásticas Comunes Asociadas a un VEC Estructural," Borradores de Economia 324, Banco de la Republica de Colombia.
    5. Shahiduzzaman, Md, 2009. "Measuring Core Inflation in Bangladesh: The Choice of Alternative Methods," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 32(1), pages 23-44, March.
    6. Mark A. Wynne, 2008. "Core inflation: a review of some conceptual issues," Review, Federal Reserve Bank of St. Louis, vol. 90(May), pages 205-228.
    7. Vega, Juan Luis & Wynne, Mark A., 2001. "An evaluation of some measures of core inflation for the euro area," Working Paper Series 0053, European Central Bank.
    8. mhamdi, ghrissi, 2014. "Indicators of core inflation: Case of Tunisia," MPRA Paper 63477, University Library of Munich, Germany.
    9. Dowd, Kevin & Cotter, John & Loh, Lixia, 2011. "U.S. Core Inflation: A Wavelet Analysis," Macroeconomic Dynamics, Cambridge University Press, vol. 15(4), pages 513-536, September.
    10. Juan‐Luis Vega & Mark A. Wynne, 2003. "A First Assessment of Some Measures of Core Inflation for the Euro Area," German Economic Review, Verein für Socialpolitik, vol. 4(3), pages 269-306, August.
    11. Vega, Juan Luis & Wynne, Mark A., 2001. "An evaluation of some measures of core inflation for the euro area," Working Paper Series 53, European Central Bank.
    12. Gagik G. Aghajanyan, 2005. "Core inflation in a small transition country: choice of optimal measures," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 2(1), pages 83-110, June.
    13. Juan-Luis Vega & Mark A. Wynne, 2003. "A First Assessment of Some Measures of Core Inflation for the Euro Area," German Economic Review, Verein für Socialpolitik, vol. 4, pages 269-306, August.
    14. Luis J. Álvarez & María de los Llanos Matea, 1999. "Underlying Inflation Measures in Spain," Working Papers 9911, Banco de España.
    15. Luc Aucremanne, 2000. "The use of robust estimators as measures of core inflation," Working Paper Research 02, National Bank of Belgium.
    16. Fabio DI DIO & Francesco FELICI, 2009. "Estimating Core Inflation In Norway," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 4(3(9)_Fall).
    17. Todd E. Clark, 2001. "Comparing measures of core inflation," Economic Review, Federal Reserve Bank of Kansas City, vol. 86(Q II), pages 5-31.
    18. Lei Lei Song, 2003. "The Role of the Unit of Analysis in Tax Policy Reform Evaluations," Melbourne Institute Working Paper Series wp2003n29, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    19. Sadia Tahir, 2003. "Core Inflation Measures for Pakistan," SBP Working Paper Series 04, State Bank of Pakistan, Research Department.
    20. Meyler, Aidan, 1999. "A Statistical Measure Of Core Inflation," Research Technical Papers 2/RT/99, Central Bank of Ireland.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eso:journl:v:38:y:2007:i:3:p:355-377. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Aedin Doris (email available below). General contact details of provider: https://www.esr.ie .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.