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An evaluation of some measures of core inflation for the euro area

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  • Vega, Juan Luis
  • Wynne, Mark A.

Abstract

We examine two measures of core inflation which have been proposed in recent years: the limited-influence estimators of core inflation pioneered by Bryan and Cecchetti (1994); and the Edgeworth or variance-weighted price index discussed by Diewert (1995). We compare these measures with traditional 'Ex. Food & Energy'-type measures and evaluate them on the basis of two criteria: their ability to track movements in trend inflation; and their ability to predict future headline inflation. We do find evidence that traditional 'Ex. Food & Energy'-type measure of core inflation may be dominated by alternative measures and conclude that trimmed-mean measures of core inflation may be a useful input to the monetary policy process. These conclusions, nonetheless, are necessarily tentative and subject to strong caveats due to the short span of data on which inference can be drawn JEL Classification: E31

Suggested Citation

  • Vega, Juan Luis & Wynne, Mark A., 2001. "An evaluation of some measures of core inflation for the euro area," Working Paper Series 53, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:200153
    Note: 46042
    as

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    References listed on IDEAS

    as
    1. Balke, Nathan S. & Wynne, Mark A., 2000. "An equilibrium analysis of relative price changes and aggregate inflation," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 269-292, April.
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    3. Aucremanne, L., 2000. "The Use of Robust Estimators as Measures of Core Inflation," Papers 2, Warwick - Development Economics Research Centre.
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    11. Shiratsuka, Shigenori, 1997. "Inflation Measures for Monetary Policy: Measuring the Underlying Inflation Trend and Its Implication for Monetary Policy Implementation," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 15(2), pages 1-26, December.
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    More about this item

    Keywords

    core inflation; euro area; HICP;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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