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Inflation Measures for Monetary Policy: Measuring the Underlying Inflation Trend and Its Implication for Monetary Policy Implementation

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  • Shiratsuka, Shigenori

    (Bank of Japan)

Abstract

Few will argue against the view that price stability plays an important role in promoting medium- to long-term economic growth. However, a consensus has yet to be gained as to how we should define price stability in the context of monetary policy operations and a desirable rate of inflation. In addition, measured inflation rates are affected by various temporary shocks, and it is indeed quite a difficult issue to assess whether the underlying inflation trend is stable or not. This paper reexamines the definition of price stability from the practical viewpoint of monetary policy implementation, and discusses the usefulness of a limited influence estimator (LIE) as an indicator to trace the underlying inflation trend. The LIE is deemed useful in adjusting for the effects of various temporary shocks, and in gauging the underlying trend in price changes. In particular, the strength and direction of the under-lying inflation trend become more evident when year-to-year and seasonally adjusted month-to-month changes of the LIE are used in combination with other indexes such as changes in the overall CPI (or the overall CPI excluding fresh food).

Suggested Citation

  • Shiratsuka, Shigenori, 1997. "Inflation Measures for Monetary Policy: Measuring the Underlying Inflation Trend and Its Implication for Monetary Policy Implementation," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 15(2), pages 1-26, December.
  • Handle: RePEc:ime:imemes:v:15:y:1997:i:2:p:1-26
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    Citations

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    Cited by:

    1. Andrade, Isabel & O'Brien, Raymond, 2007. "A measure of core inflation in the UK," Discussion Paper Series In Economics And Econometrics 0708, Economics Division, School of Social Sciences, University of Southampton.
    2. 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.
    3. Ivan Roberts, 2005. "Underlying Inflation: Concepts, Measurement and Performance," RBA Research Discussion Papers rdp2005-05, Reserve Bank of Australia.
    4. Bryan, Michael-F & Cecchetti, Stephen-G, 1999. "The Monthly Measurement of Core Inflation in Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(1), pages 77-101, May.
    5. Andrea Brischetto & Anthony Richards, 2006. "The Performance of Trimmed Mean Measures of Underlying Inflation," RBA Research Discussion Papers rdp2006-10, Reserve Bank of Australia.
    6. Jamie Armour, 2006. "An Evaluation of Core Inflation Measures," Staff Working Papers 06-10, Bank of Canada.
    7. Mio, Hitoshi, 2002. "Identifying Aggregate Demand and Aggregate Supply Components of Inflation Rate: A Structural Vector Autoregression Analysis for Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(1), pages 33-56, January.
    8. Shiratsuka, Shigenori, 1999. "Measurement Errors in the Japanese Consumer Price Index," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(3), pages 69-102, December.
    9. Pelinescu, Elena & Dospinescu, Andrei Silviu, 2008. "Alternative Measures of Core Inflation in Romania," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 5(1), pages 134-148, March.
    10. Luis J. Álvarez & María de los Llanos Matea, 1999. "Underlying Inflation Measures in Spain," Working Papers 9911, Banco de España;Working Papers Homepage.
    11. Sadia Tahir, 2003. "Core Inflation Measures for Pakistan," SBP Working Paper Series 04, State Bank of Pakistan, Research Department.
    12. Sakarya, Burchan & Yurtoglu, Hasan & Duvan, Berke, 1999. "A Cointegration Analysis of Alternative Core Inflation Measures for Turkey," MPRA Paper 69191, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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