Core inflation at the Bank of Canada: A critique
Core inflation is a useful concept for the theory and practice of monetary policy. The Bank of Canada maintains, in addition, that core inflation should be, and has in fact been, a useful predictor of headline inflation. Under the bank's policy of inflation targeting, however, this is incorrect: over horizons of a year or more the best forecast should be the 2 percent target; and core inflation should have no predictive content. Post-1995 evidence confirms this argument.
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