Measuring Core Inflation
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.
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|Date of creation:||Mar 1995|
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- 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.
- Roger Beaton & Paul Fisher, 1995. "The Construction of RPIY," Bank of England working papers 28, Bank of England.
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