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Underlying Inflation Measures in Spain

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  • L.J. Álvarez
  • M de los Llanos Matea

Abstract

Applying the concept of underlying inflation can be thought of as an attempt to capture the general trend in inflation more accurately than with readily available data on headline inflation. In this paper a number of approaches to the analysis of underlying inflation are examined from a unifying standpoint, stressing their complementary nature, and empirical results are presented for the Spanish economy. Different measures differ from each other in the information set which is considered to be relevant for estimating the underlying rate of inflation. We first examine the simplest of the procedures that amounts to ignoring price developments in the most volatile sub-components of the CPI and then consider limited-influence estimators that take advantage of the information contained in the cross-sectional distribution of individual prices. Statistical methods of extracting the trend component of inflation are also discussed. Finally, measures that allow for the interplay of other economic variables are considered.

Suggested Citation

  • L.J. Álvarez & M de los Llanos Matea, 2001. "Underlying Inflation Measures in Spain," DNB Staff Reports (discontinued) 60, Netherlands Central Bank.
  • Handle: RePEc:dnb:staffs:60
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Mio, Hitoshi, 2002. "Identifying Aggregate Demand and Aggregate Supply Components of Inflation Rate: A Structural Vector Autoregression Analysis for Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(1), pages 33-56, January.
    2. Robalo Marques, Carlos & Duarte Neves, Pedro & Morais Sarmento, Luis, 2003. "Evaluating core inflation indicators," Economic Modelling, Elsevier, vol. 20(4), pages 765-775, July.
    3. Gagik G. Aghajanyan, 2005. "Core inflation in a small transition country: choice of optimal measures," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 2(1), pages 83-110, June.
    4. Juan-Luis Vega & Mark A. Wynne, 2003. "A First Assessment of Some Measures of Core Inflation for the Euro Area," German Economic Review, Verein für Socialpolitik, vol. 4, pages 269-306, August.
    5. Luc Aucremanne & Guy Brys & Peter J Rousseeuw & Anja Struyf & Mia Hubert, 2003. "Inflation, relative prices and nominal rigidities," BIS Papers chapters,in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 81-105 Bank for International Settlements.
    6. Dowd, Kevin & Cotter, John & Loh, Lixia, 2011. "U.S. Core Inflation: A Wavelet Analysis," Macroeconomic Dynamics, Cambridge University Press, vol. 15(04), pages 513-536, September.
    7. Fethi Ogunc, 2010. "Turkiye'de Islenmemis Gida Enflasyonunda Oynaklik : Durum Tespiti," CBT Research Notes in Economics 1005, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    8. C.K. Folkertsma & K. Hubrich, 2000. "Performance of core inflation measures," WO Research Memoranda (discontinued) 639, Netherlands Central Bank, Research Department.
    9. Smith, Julie K, 2004. "Weighted Median Inflation: Is This Core Inflation?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 253-263, April.
    10. Ariño, Miguel A. & Canela, Miguel A., 2002. "Evolución de la inflación en España," IESE Research Papers D/446, IESE Business School.
    11. Marques, Carlos Robalo & Neves, Pedro Duarte & da Silva, Afonso Goncalves, 2002. "Why should Central Banks avoid the use of the underlying inflation indicator?," Economics Letters, Elsevier, vol. 75(1), pages 17-23, March.
    12. Hondroyiannis, George & Papapetrou, Evangelia, 2006. "Stock returns and inflation in Greece: A Markov switching approach," Review of Financial Economics, Elsevier, vol. 15(1), pages 76-94.
    13. María Ángeles Caraballo & Carlos Usabiaga, 2003. "Análisis de la estructura de la inflación de las regiones españolas: La metodología de Ball y Mankiw," Economic Working Papers at Centro de Estudios Andaluces E2003/44, Centro de Estudios Andaluces.
    14. Arrazola, Maria & de Hevia, Jose, 2002. "An alternative measure of core inflation," Economics Letters, Elsevier, vol. 75(1), pages 69-73, March.
    15. Abdul Aleem & Amine Lahiani, 2011. "Estimation and evaluation of core inflation measures," Applied Economics, Taylor & Francis Journals, vol. 43(25), pages 3619-3629.

    More about this item

    Keywords

    core inflation; Spanish inflation; trimmed means; structural VAR; underlying inflation;

    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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