How does the performance of core inflation indicators differ in less stable times?
In this study, we discuss the overall performance of different core inflation measures for Turkey. We first describe and derive the core measures based on exclusion, statistical and model-based methods. We then compare their performances during the entire sample period of January 2003 – January 2011. Apart from the shocks that they are subject to, performance of core inflation measures depends also on the nature of the inflationary process. Therefore we evaluate the performance of measures period wise, for two subsample periods, one being relatively stable and other being less stable in terms of inflation process. We show that permanent exclusion based measures perform much better in stable times, while their performance deteriorate in less stable periods. Model based measures have a robust performance under both states. Statistical measures dominate in terms of their performance in predictive ability under both states and their trend tracking ability improves in less stable periods.
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