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Measuring Core Inflation

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  • Quah, Danny

Abstract

In this paper we argue that measured (RPI) inflation is conceptually mismatched with core inflation: the difference is more than just `measurement error'. We propose a technique for measuring core inflation based on an explicit long-run economic hypothesis. Core inflation is defined as that component of measured inflation that has no (medium- to) long-run impact on real output - a notion that is consistent with the vertical long-run Phillips curve interpretation of the co-movements in inflation and output. We construct a measure of core inflation by placing dynamic restrictions on a vector autoregression (VAR) system.

Suggested Citation

  • Quah, Danny, 1995. "Measuring Core Inflation," CEPR Discussion Papers 1153, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1153
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    References listed on IDEAS

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    1. Breedon, F J & Fisher, P G, 1996. "M0: Causes and Consequences," The Manchester School of Economic & Social Studies, University of Manchester, vol. 64(4), pages 371-387, December.
    2. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
    3. Roger Beaton & Paul Fisher, 1995. "The Construction of RPIY," Bank of England working papers 28, Bank of England.
    4. Paul Fisher & Suzanne Hudson & Mahmood Pradhan, 1993. "Divisia Indices for Money: An Appraisal of Theory and Practice," Bank of England working papers 9, Bank of England.
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    7. Joanna Paisley, 1994. "A Model of Building Society Interest Rate Setting," Bank of England working papers 22, Bank of England.
    8. Andrew Derry & Mahmood Pradhan, 1993. "Tax Specific Term Structures of Interest Rates in the UK Government Bond Market," Bank of England working papers 11, Bank of England.
    9. Gabriel Sterne & Tamim Bayoumi, 1993. "Regional Trading Blocs, Mobile Capital and Exchange Rate Co-ordination," Bank of England working papers 12, Bank of England.
    10. Mike Joyce, 1995. "Modelling UK Inflation Uncertainty: The Impact of News and the Relationship with Inflation," Bank of England working papers 30, Bank of England.
    11. Mark Deacon & Andrew Derry, 1994. "Deriving Estimates of Inflation Expectations from the Prices of UK Government Bonds," Bank of England working papers 23, Bank of England.
    12. Jo Corkish & David Miles, 1994. "Inflation, inflation risks and asset returns," Bank of England working papers 27, Bank of England.
    13. Chris Melliss & Mark Cornelius, 1994. "New currencies in the Former Soviet Union: a recipe for hyperinflation or the path to price stability," Bank of England working papers 26, Bank of England.
    14. 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

    Keywords

    Core Inflation; Dynamic Restrictions; Vector Autoregression;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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