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Measuring Core Inflation for Turkey - Trimmed Means Approach

Author

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  • Pelin Berkmen

Abstract

This paper is one of the the pioneers in measuring the core inflation for Turkey and uses the methodology developed by Bryan, Cecchetti and Wiggins II (1997). As the price change distributions are not normally distributed, weighted sample means are not the efficient estimators of inflation. In such leptokurtic distributions trimmed means provide statistically more efficient estimators of inflation. For the consumer prices, using historical data, the optimal trim is found to be 19 percent from the each tail of the cross sectional distribution and for the wholesale prices it is found to be 12 percent (percentage that minimizes MAD). Trimmed mean estimators of inflation move in line with the headline inflation in the long run, implying a potential use for future inflation forecasting.

Suggested Citation

  • Pelin Berkmen, 2002. "Measuring Core Inflation for Turkey - Trimmed Means Approach," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 2(2), pages 1-18.
    • Handle: RePEc:tcb:cebare:v:2:y:2002:i:2:p:1-18
    as

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    File URL: http://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Central+Bank+Review/2002/Volume+2-2/
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    References listed on IDEAS

    as
    1. Scott Roger, 1998. "Core inflation: concepts, uses and measurement," Reserve Bank of New Zealand Discussion Paper Series G98/9, Reserve Bank of New Zealand.
    2. Hasan Bakhshi & Tony Yates, 1999. "To trim or not to trim? An application of a trimmmed mean inflation estimator to the United Kingdom," Bank of England working papers 97, Bank of England.
    3. Michael F. Bryan & Stephen G. Cecchetti, 1994. "Measuring Core Inflation," NBER Chapters, in: Monetary Policy, pages 195-219, National Bureau of Economic Research, Inc.
    4. Freeman, Donald G., 1998. "Do core inflation measures help forecast inflation?," Economics Letters, Elsevier, vol. 58(2), pages 143-147, February.
    5. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
    6. Mio, Hitoshi & Higo, Masahiro, 1999. "Underlying Inflation and the Distribution of Price Change: Evidence from the Japanese Trimmed-Mean CPI," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(1), pages 103-132, May.
    7. Stephen G. Cecchetti, 1997. "Measuring short-run inflation for central bankers," Review, Federal Reserve Bank of St. Louis, issue May, pages 143-155.
    8. Laurence Ball & N. Gregory Mankiw, 1995. "Relative-Price Changes as Aggregate Supply Shocks," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(1), pages 161-193.
    9. Mr. Peter F. Christoffersen & Mr. Robert F. Westcott, 1999. "Is Poland Ready for Inflation Targeting?," IMF Working Papers 1999/041, International Monetary Fund.
    10. Michael F. Bryan & Stephen G. Cecchetti & Rodney L. Wiggins II, 1997. "Efficient Inflation Estimation," NBER Working Papers 6183, National Bureau of Economic Research, Inc.
    11. Stanley Fischer, 1981. "Relative Shocks, Relative Price Variability, and Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(2), pages 381-442.
    12. Scott Roger, 1998. "Core Inflation: Concepts, Uses and Measurement," Occasional Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number occ24.
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    Citations

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    Cited by:

    1. Asli Gunay & Kivilcim Metin-Ozcan & Erinc Yeldan, 2005. "Real wages, profit margins and inflation in Turkish manufacturing under post-liberalization," Applied Economics, Taylor & Francis Journals, vol. 37(16), pages 1899-1905.
    2. Shahiduzzaman, Md, 2009. "Measuring Core Inflation in Bangladesh: The Choice of Alternative Methods," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 32(1), pages 23-44, March.
    3. Kulaksizoglu, Tamer, 2015. "Measuring the Core Inflation in Turkey with the SM-AR Model," MPRA Paper 62653, University Library of Munich, Germany.
    4. 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.
    5. Muhammad Amin Khan Lodhi, 2007. "Evaluating Core Inflation Measures in Pakistan," SBP Working Paper Series 18, State Bank of Pakistan, Research Department.

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    More about this item

    Keywords

    Core Inflation; Trimmed Mean Estimators; Turkey;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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