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Evaluating Core Inflation

Author

Listed:
  • C.R. Marques
  • P.D. Neves
  • L.M. Sarmento

Abstract

This paper proposes testable conditions that core inflation measures should satisfy. Trend inflation indicators calculated by Banco de Portugal are tested against this background. The major conclusion is that the so-called "underlying inflation", the "10% trimmed mean", and the "25% trimmed mean" do not meet the proposed conditions. However, they are satisfied by the "37-month centred moving average", the "first principal component" and the "standard deviation weighted CPI" indicators. Yet, only the last two indicators can be used as useful core inflation measures, as the first one is not computable in real time.

Suggested Citation

  • C.R. Marques & P.D. Neves & L.M. Sarmento, 2001. "Evaluating Core Inflation," DNB Staff Reports (discontinued) 66, Netherlands Central Bank.
  • Handle: RePEc:dnb:staffs:66
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    File URL: https://www.dnb.nl/binaries/sr066_tcm46-146843.pdf
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    References listed on IDEAS

    as
    1. Mark A. Wynne, 2008. "Core inflation: a review of some conceptual issues," Review, Federal Reserve Bank of St. Louis, issue May, pages 205-228.
    2. Michael F. Bryan & Stephen G. Cecchetti & Rodney L. Wiggins, 1997. "Efficient inflation estimation," Working Papers (Old Series) 9707, Federal Reserve Bank of Cleveland.
    3. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    4. Michael F. Bryan & Stephen G. Cecchetti, 1994. "Measuring Core Inflation," NBER Chapters,in: Monetary Policy, pages 195-219 National Bureau of Economic Research, Inc.
    5. Stephen G. Cecchetti, 1997. "Measuring short-run inflation for central bankers," Review, Federal Reserve Bank of St. Louis, issue May, pages 143-155.
    6. Thérèse Laflèche, 1997. "Statistical measures of the trend rate of inflation," Bank of Canada Review, Bank of Canada, vol. 1997(Autumn), pages 29-47.
    7. Freeman, Donald G., 1998. "Do core inflation measures help forecast inflation?," Economics Letters, Elsevier, vol. 58(2), pages 143-147, February.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. repec:taf:oaefxx:v:3:y:2015:i:1:p:1014252 is not listed on IDEAS
    2. Alan Mankikar & Jo Paisley, 2004. "Core inflation: a critical guide," Bank of England working papers 242, Bank of England.
    3. Mick Silver, 2006. "Core Inflation Measures and Statistical Issues in Choosing Among Them," IMF Working Papers 06/97, International Monetary Fund.

    More about this item

    Keywords

    core inflation measures; trimmed mean;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics

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