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Stability price index, core inflation and output volatility

  • Wojciech Charemza
  • Imran Husssain Shah

This article examines the relationship between the ‘exclusion’ type Core Inflation ( CI ) measures and the stability price index. Empirical results for Malaysia and Pakistan suggest that if targeting CI index is to stabilize output, weights of the export-oriented sectors (energy for Malaysia and foodstuffs for Pakistan) should be reduced, in relation to the CPI weights, and weights of the import-oriented sectors should be increased. It also indicates that, in order to maintain real sector stability, central bankers should include the fundamental component of the stock market prices in the price index they target.

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File URL: http://hdl.handle.net/10.1080/13504851.2012.739279
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Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 20 (2013)
Issue (Month): 8 (May)
Pages: 737-741

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Handle: RePEc:taf:apeclt:v:20:y:2013:i:8:p:737-741
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  1. N. Gregory Mankiw & Ricardo Reis, 2002. "What Measure of Inflation Should a Central Bank Target?," Harvard Institute of Economic Research Working Papers 1984, Harvard - Institute of Economic Research.
  2. Abdul Aleem & Amine Lahiani, 2011. "Estimation and evaluation of core inflation measures," Applied Economics, Taylor & Francis Journals, vol. 43(25), pages 3619-3629.
  3. Stephen G. Cecchetti & Kim, 2004. "Inflation Targeting, Price-Path Targeting, and Output Variability," NBER Chapters, in: The Inflation-Targeting Debate, pages 173-200 National Bureau of Economic Research, Inc.
  4. Claudio Morana, 2007. "A structural common factor approach to core inflation estimation and forecasting," Applied Economics Letters, Taylor & Francis Journals, vol. 14(3), pages 163-169.
  5. Ricardo Reis, 2005. "A Dynamic Measure of Inflation," NBER Working Papers 11746, National Bureau of Economic Research, Inc.
  6. Alberto Humala & Gabriel Rodríguez, 2011. "A Factorial Decomposition Of Inflation In Peru, An Alternative Measure Of Core Inflation," Documentos de Trabajo / Working Papers 2011-315, Departamento de Economía - Pontificia Universidad Católica del Perú.
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