How Useful is Core Inflation for Forecasting Headline Inflation?
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.
References listed on IDEAS
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- 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.
- Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers 497, Massachusetts Institute of Technology (MIT), Department of Economics.
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- Todd E. Clark, 2001. "Comparing measures of core inflation," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-31.
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- Meyler, Aidan, 1999. "A statistical measure of core inflation," MPRA Paper 11362, University Library of Munich, Germany.
- Claus, I., 1997. "A Measure of Underlying Inflation in the United States," Staff Working Papers 97-20, Bank of Canada.
- Hilde Christiane Bjørnland, 2001. "Identifying domestic and imported core inflation," Applied Economics, Taylor & Francis Journals, vol. 33(14), pages 1819-1831.
- Stephen G. Cecchetti, 1997. "Measuring short-run inflation for central bankers," Review, Federal Reserve Bank of St. Louis, issue May, pages 143-155.
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