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A measure of core inflation in the UK

  • Andrade, Isabel
  • O'Brien, Raymond
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    We develop a measure of core inflation in the UK over the period January 1987 - December 1998, following the work of Bryan, Cecchetti, Wiggins and Roger. Disaggregation is into 85 price categories. Given the high kurtosis of the price change distribution over this period, a trimmed mean is a more robust estimator of core inflation than other published measures such as the RPIX widely used in the UK, in particular by the Bank of England when targeting inflation. We discuss the relative advantages of our measure of core inflation, with emphasis on the determination of an optimal trimming point and on the analysis of the products whose price changes are excluded from our measure in each time period. The resulting measure appears well behaved, but differs noticeably from a number of published measures. Working paper: accepted subject to revision

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    Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 0708.

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    Date of creation: 18 Sep 2007
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    Handle: RePEc:stn:sotoec:0708
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    1. Danny Quah & Danny Quah & Shaun P. Vahey, 1995. "Measuring Core Inflation," CEP Discussion Papers dp0254, Centre for Economic Performance, LSE.
    2. Ball, L. & Mankiw, G.H., 1992. "Relative-Price Change as Aggregate Supply Shocks," Harvard Institute of Economic Research Working Papers 1609, Harvard - Institute of Economic Research.
    3. Wynne, Mark A., 1999. "Core inflation: a review of some conceptual issues," Working Paper Series 0005, European Central Bank.
    4. Bent Nielsen, 2000. "Cointegration Analysis in the Presence of Structural Breaks in the Deterministic Trend," Econometric Society World Congress 2000 Contributed Papers 1494, Econometric Society.
    5. Hendry, David F. & Richard, Jean-Francois, 1982. "On the formulation of empirical models in dynamic econometrics," Journal of Econometrics, Elsevier, vol. 20(1), pages 3-33, October.
    6. Quah, Danny, 1995. "Measuring Core Inflation," CEPR Discussion Papers 1153, C.E.P.R. Discussion Papers.
    7. Michael F. Bryan & Stephen G. Cecchetti & Rodney L. Wiggins II, 1997. "Efficient inflation estimation," Working Paper 9707, Federal Reserve Bank of Cleveland.
    8. Doornik, Jurgen A, 1998. " Approximations to the Asymptotic Distributions of Cointegration Tests," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 573-93, December.
    9. Carlos Robalo Marques & Pedro Duarte Neves & Luís Morais Sarmento, 2000. "Evaluating Core Inflation Indicators," Working Papers w200003, Banco de Portugal, Economics and Research Department.
    10. 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.
    11. Haldane, Andrew G, 1998. "On Inflation Targeting in the United Kingdom," Scottish Journal of Political Economy, Scottish Economic Society, vol. 45(1), pages 1-32, February.
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