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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.

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File URL: http://www.tcmb.gov.tr/wps/wcm/connect/TCMB+EN/TCMB+EN/Main+Menu/PUBLICATIONS/Research/Working+Paperss/2010/10-19
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Paper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 1019.

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Date of creation: 2010
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Handle: RePEc:tcb:wpaper:1019
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  1. Michael F. Bryan & Stephen G. Cecchetti, 1993. "Measuring Core Inflation," NBER Working Papers 4303, National Bureau of Economic Research, Inc.
  2. K.W. Clements & H.Y. Izan, 1984. "The Measurement of Inflation: a Stochastic Approach," Economics Discussion / Working Papers 84-10, The University of Western Australia, Department of Economics.
  3. Riccardo Cristadoro & Mario Forni & Lucrezia Reichlin & Giovanni Veronese, 2005. "A core inflation indicator for the Euro area," ULB Institutional Repository 2013/10131, ULB -- Universite Libre de Bruxelles.
  4. Jushan Bai, 2003. "Inferential Theory for Factor Models of Large Dimensions," Econometrica, Econometric Society, vol. 71(1), pages 135-171, January.
  5. 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.
  6. John Geweke & Guofu Zhou, 1995. "Measuring the pricing error of the arbitrage pricing theory," Staff Report 189, Federal Reserve Bank of Minneapolis.
  7. Todd E. Clark, 2001. "Comparing measures of core inflation," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-31.
  8. James H. Stock & Mark W. Watson, 1998. "Diffusion Indexes," NBER Working Papers 6702, National Bureau of Economic Research, Inc.
  9. Michael F. Bryan & Stephen G. Cecchetti, 1993. "The Consumer Price Index as a Measure of Inflation," NBER Working Papers 4505, National Bureau of Economic Research, Inc.
  10. Mark A. Wynne, 1999. "Core inflation: a review of some conceptual issues," Working Papers 9903, Federal Reserve Bank of Dallas.
  11. 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.
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