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Measures of trend inflation in Hong Kong

In: Monetary policy and the measurement of inflation: prices, wages and expectations

Author

Listed:
  • Frank Leung

    (Hong Kong Monetary Authority)

  • Kevin Chow

    (Hong Kong Monetary Authority)

  • Simon Chan

    (Hong Kong Monetary Authority)

Abstract

The concept of trend inflation is crucial for macroeconomic analysis and policy formulation by central banks. In this paper, we compare measures of trend inflation in Hong Kong estimated by the exclusion and statistical methods. Our findings suggest that the trend inflation estimated by the exclusion method (by excluding basic food, energy and other volatile items) and the principal component technique have strong predictive power on future changes in headline CPI or PCE inflation. Evaluation results based on qualitative and quantitative criteria suggest that the two estimation methods have their own strengths and weaknesses, and none of the methods has clear absolute advantage over the other for measuring trend inflation.
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Suggested Citation

  • Frank Leung & Kevin Chow & Simon Chan, 2010. "Measures of trend inflation in Hong Kong," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy and the measurement of inflation: prices, wages and expectations, volume 49, pages 177-200, Bank for International Settlements.
    • Handle: RePEc:bis:bisbpc:49-10
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    5. Cogley, Timothy, 2002. "A Simple Adaptive Measure of Core Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 94-113, February.
    6. Carlos Robalo Marques & Pedro Duarte Neves & Afonso Gonçalves da Silva, 2001. "Using the first principal component as a core inflation indicator," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
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    Cited by:

    1. Chen, Cong & Zhang, Su & Zhang, Guohui & Bogus, Susan M. & Valentin, Vanessa, 2014. "Discovering temporal and spatial patterns and characteristics of pavement distress condition data on major corridors in New Mexico," Journal of Transport Geography, Elsevier, vol. 38(C), pages 148-158.
    2. Ramon Moreno, 2010. "Some issues in measuring and tracking prices in emerging market exonomies," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy and the measurement of inflation: prices, wages and expectations, volume 49, pages 13-51, Bank for International Settlements.

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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