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Evaluating core inflation indicators


  • Pedro Duarte Neves
  • Luís Morais Sarmento
  • Carlos Robalo Marques


This paper proposes testable conditions that core inflation measures should satisfy. Trend inflation indicators calculated by Banco de Portugal are tested against this background. The major conclusion is that the so-called “underlying inflation”, the “10% trimmed mean”, and the “25% trimmed mean” do not meet the proposed conditions. However, they are satisfied by the “37-month centred moving average”, the “first principal component” and the “standard deviation weighted CPI” indicators. Yet, only the last two indicators can be used as useful core inflation measures, as the first one is not computable in real time.
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Suggested Citation

  • Pedro Duarte Neves & Luís Morais Sarmento & Carlos Robalo Marques, 1999. "Evaluating core inflation indicators," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  • Handle: RePEc:ptu:bdpart:b199907

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    References listed on IDEAS

    1. Mark A. Wynne, 2008. "Core inflation: a review of some conceptual issues," Review, Federal Reserve Bank of St. Louis, issue May, pages 205-228.
    2. דר אברהם כרמלי & גב נעמה שמיר וגב לילי יצחקי, 1999. "מתחברים לנוער מנותק," Working Papers 191, National Insurance Institute of Israel.
    3. Christine Gartner & Gert Wehinger, 1998. "Core Inflation in Selected European Union Countries," Working Papers 33, Oesterreichische Nationalbank (Austrian Central Bank).
    4. Robalo Marques, Carlos & Duarte Neves, Pedro & Morais Sarmento, Luis, 2003. "Evaluating core inflation indicators," Economic Modelling, Elsevier, vol. 20(4), pages 765-775, July.
    5. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 293-335, October.
    6. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
    7. Luis J. Álvarez & María de los Llanos Matea, 1999. "Underlying Inflation Measures in Spain," Working Papers 9911, Banco de España;Working Papers Homepage.
    8. אסתר טולידנו, 1999. "מקבלי דמי אבטלה בשנת 1998," Working Papers 385, National Insurance Institute of Israel.
    9. Michael F. Bryan & Stephen G. Cecchetti, 1994. "Measuring Core Inflation," NBER Chapters,in: Monetary Policy, pages 195-219 National Bureau of Economic Research, Inc.
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    11. Fischer, Andreas M, 1989. "Unit Roots and Survey Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(4), pages 451-463, November.
    12. אסתר טולידנו, 1995. "מקבלי דמי אבטלה בשנת 1994," Working Papers 444, National Insurance Institute of Israel.
    13. Freeman, Donald G., 1998. "Do core inflation measures help forecast inflation?," Economics Letters, Elsevier, vol. 58(2), pages 143-147, February.
    14. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    15. אסתר טולדנו, 1997. "מקבלי דמי אבטלה בשנת 1996," Working Papers 521, National Insurance Institute of Israel.
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    17. Le Bihan, Herve & Sedillot, Franck, 2000. "Do core inflation measures help forecast inflation?: Out-of-sample evidence from French data," Economics Letters, Elsevier, vol. 69(3), pages 261-266, December.
    18. דר עמנואל חיגר, 1999. "חינוך מיני לנוער חרש," Working Papers 178, National Insurance Institute of Israel.
    19. Thérèse Laflèche, 1997. "Statistical measures of the trend rate of inflation," Bank of Canada Review, Bank of Canada, vol. 1997(Autumn), pages 29-47.
    20. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
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    More about this item

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • 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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