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The Monthly Measurement of Core Inflation in Japan

  • Bryan, Michael-F

    (Federal Reserve Bank of Cleveland)

  • Cecchetti, Stephen-G

    (Federal Reserve Bank of New York and NBER)

This paper considers the use of trimmed means as monthly indicators of Japanese core inflation. As in Bryan, Cecchetti, and Wiggins (1997) for the United States, and Roger (1997) for New Zealand, we find that trimming the tails of the price change distribution substantially improves high-frequency estimates of Japanese core inflation. These estimators yield efficiency gains of roughly two-thirds over the Japanese CPI. While we find that trimming approximately 35 percent from each tail of the price change distribution produces the most efficient monthly estimator over the full 27-year period, a range of trimmed-mean estimators (between 21 percent and the median price change) provide nearly the same signal. Moreover, we find that these estimators are superior to the standard monthly core inflation estimator in Japan, the CPI less fresh food. At lower frequencies (12-month percent changes and beyond), the differences between the candidate estimators were found to be small, and the trimmed estimators were nearly the same as the CPI less fresh food and energy along many dimensions.

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File URL: http://www.imes.boj.or.jp/research/papers/english/me17-1-3.pdf
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Article provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.

Volume (Year): 17 (1999)
Issue (Month): 1 (May)
Pages: 77-101

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Handle: RePEc:ime:imemes:v:17:y:1999:i:1:p:77-101
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  1. Caballero, R.J. & Engel, E.M.R.A., 1990. "Dynamic (S,S) Economies," Discussion Papers 1990_44, Columbia University, Department of Economics.
  2. Danny Quah & Danny Quah & Shaun P. Vahey, 1995. "Measuring Core Inflation," CEP Discussion Papers dp0254, Centre for Economic Performance, LSE.
  3. Stephen G. Cecchetti, 1997. "Measuring short-run inflation for central bankers," Review, Federal Reserve Bank of St. Louis, issue May, pages 143-155.
  4. Caplin, Andrew & Leahy, John, 1991. "State-Dependent Pricing and the Dynamics of Money and Output," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 683-708, August.
  5. Nathan S. Balke & Mark A. Wynne, 1996. "An equilibrium analysis of relative price changes and aggregate inflation," Working Papers 9609, Federal Reserve Bank of Dallas.
  6. 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.
  7. Quah, Danny, 1995. "Measuring Core Inflation," CEPR Discussion Papers 1153, C.E.P.R. Discussion Papers.
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