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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- Olivier Jean Blanchard & Danny Quah, 1988.
"The Dynamic Effects of Aggregate Demand and Supply Disturbance,"
497, Massachusetts Institute of Technology (MIT), Department of Economics.
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"A Statistical Measure Of Core Inflation,"
Research Technical Papers
2/RT/99, Central Bank of Ireland.
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- Stephen G. Cecchetti, 1997.
"Measuring short-run inflation for central bankers,"
Federal Reserve Bank of St. Louis, issue May, pages 143-155.
- Todd E. Clark, 2001. "Comparing measures of core inflation," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-31.
- Hilde C. BjÃ¸rnland, 2000. "Identifying Domestic and Imported Core Inflation," IMF Working Papers 00/4, International Monetary Fund.
- Claus, I., 1997. "A Measure of Underlying Inflation in the United States," Staff Working Papers 97-20, Bank of Canada.
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