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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

    as
    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. Roger Beaton & Paul Fisher, 1995. "The Construction of RPIY," Bank of England working papers 28, Bank of England.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Core Inflation; Dynamic Restrictions; Vector Autoregression;

    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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