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Stability Price Index, Core Inflation and Output Volatility

  • Wojciech Charemza

    ()

  • Imran Hussain Shah

    ()

This paper examines the relationship between the ‘exclusion’ type core inflation measures and the stability price index. Empirical results for Malaysia and Pakistan suggests that, if targeting core inflation index is to stabilize output, weights of the export-oriented sectors (energy for Malaysia and foodstuffs for Pakistan) should be reduces, in relation to the consumers’ price index weights, and for import-oriented sectors, increased. It also indicates that, in order to maintain real sector stability, central bankers should include the fundamental component of the stock market prices in the price index they target.

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File URL: http://www.le.ac.uk/economics/research/repec/lec/leecon/dp12-21.pdf
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Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 12/21.

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Date of creation: Oct 2012
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Handle: RePEc:lec:leecon:12/21
Contact details of provider: Postal: Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK
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  1. N. Gregory Mankiw & Ricardo Reis, 2002. "What Measure of Inflation Should a Central Bank Target?," Harvard Institute of Economic Research Working Papers 1984, Harvard - Institute of Economic Research.
  2. Morana, Claudio, 2004. "A structural common factor approach to core inflation estimation and forecasting," Working Paper Series 0305, European Central Bank.
  3. Alberto Humala & Gabriel Rodríguez, 2012. "A factorial decomposition of inflation in Peru: an alternative measure of core inflation," Applied Economics Letters, Taylor & Francis Journals, vol. 19(14), pages 1331-1334, September.
  4. Stephen G. Cecchetti & Kim, 2004. "Inflation Targeting, Price-Path Targeting, and Output Variability," NBER Chapters, in: The Inflation-Targeting Debate, pages 173-200 National Bureau of Economic Research, Inc.
  5. Abdul Aleem & Amine Lahiani, 2011. "Estimation and evaluation of core inflation measures," Applied Economics, Taylor & Francis Journals, vol. 43(25), pages 3619-3629.
  6. Ricardo Reis, 2005. "A Dynamic Measure of Inflation," NBER Working Papers 11746, National Bureau of Economic Research, Inc.
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