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A New Core Inflation Indicator for Turkey (Turkiye Ekonomisi Icin Yeni Bir Cekirdek Enflasyon Gostergesi)


  • Necati Tekatli


This paper has two main objectives. The first objective is to propose a new indicator of core inflation, which is obtained by cleaning month on month relative price fluctuations from overall price changes and idiosyncratic dynamics. We use a factor model with the subcomponents of CPI inflation to extract this new core indicator. The second objective is to evaluate the performance of this new indicator and two widely used core indicators for Turkey, H and I, by the help of four criteria designed to assess the informativeness and the predictive power of these series for the analysis of overall inflation. The results suggest that the new indicator, Fcore, is a good measure of core inflation and a useful tool for policy analysis. Moreover, the core indicator H is a more informative measure of core inflation compared to core indicator I.

Suggested Citation

  • Necati Tekatli, 2010. "A New Core Inflation Indicator for Turkey (Turkiye Ekonomisi Icin Yeni Bir Cekirdek Enflasyon Gostergesi)," Working Papers 1019, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  • Handle: RePEc:tcb:wpaper:1019

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    References listed on IDEAS

    1. Mark A. Wynne, 2008. "Core inflation: a review of some conceptual issues," Review, Federal Reserve Bank of St. Louis, issue May, pages 205-228.
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    8. Cristadoro, Riccardo & Forni, Mario & Reichlin, Lucrezia & Veronese, Giovanni, 2005. "A Core Inflation Indicator for the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(3), pages 539-560, June.
    9. Robert J. Gordon, 1975. "Alternative Responses of Policy to External Supply Shocks," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(1), pages 183-206.
    10. James H. Stock & Mark W. Watson, 1998. "Diffusion Indexes," NBER Working Papers 6702, National Bureau of Economic Research, Inc.
    11. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, vol. 93(4), pages 1216-1239, September.
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    Inflation; Core inflation; Factor model; Bayesian time series;

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