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Design and Evaluation of Core Inflation Measures for Turkey

Author

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  • Oguz Atuk
  • Mustafa Utku Ozmen

Abstract

This study analyzes core inflation concept for Turkey from the perspective of design and evaluation. To our best knowledge, this is the first study to evaluate the performance of the core inflation measures for Turkey. We first define and calculate new core inflation indicators using the disaggregated price data for the time period of January 1994 to June 2007. The core inflation measures developed in this paper include weighted median, trimmed mean and volatility-based measures along with the permanent exclusion-based methods. Later, we evaluate the performance of the core inflation measures with regards to pre-defined criteria including unbiasedness, reduced volatility, trend tracking ability and predictive ability. Considering the significant shift in the inflation process in Turkey, we split the sample into two as pre- and post-2003 when evaluating the performance of the core inflation measures. Overall, no single core inflation indicator stands out alone as “the core” and therefore different core measures should be followed simultaneously to get a better understanding of the real trend of inflation and to identify various shocks hitting the inflation. However, limited influence estimators and volatility-based core measures perform relatively better compared to permanent exclusion-based methods. The study also provides an extensive analysis of the distribution of price changes at various aggregation levels.

Suggested Citation

  • Oguz Atuk & Mustafa Utku Ozmen, 2009. "Design and Evaluation of Core Inflation Measures for Turkey," Working Papers 0903, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  • Handle: RePEc:tcb:wpaper:0903
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    File URL: http://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2009/09-03
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Oguz Atuk & M. Utku Ozmen & Necati Tekatli, 2011. "Cekirdek Enflasyon Gostergelerinin Kullanimi Uzerine Bir Degerlendirme," CBT Research Notes in Economics 1101, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    2. M. Utku Ozmen & Orhun Sevinc, 2011. "Price Rigidity In Turkey : Evidence From Micro Data," Working Papers 1125, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    3. Orhun Sevinc, 2012. "Enflasyon Ana Egiliminin Temel Bilesenler Analiziyle Incelenmesi," CBT Research Notes in Economics 1208, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.

    More about this item

    Keywords

    Inflation; core inflation; Turkey;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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