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Why should Central Banks avoid the use of the underlying inflation indicator?

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  • Marques, Carlos Robalo
  • Neves, Pedro Duarte
  • da Silva, Afonso Goncalves

Abstract

This paper assesses the usefulness of the commonly used underlying inflation indicator, in light of the criteria proposed in Marques et al. (2000). Empirical evidence for a group of six countries strongly suggets that the use of underlying inflation as an indicator of trend inflation should be avoided.
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Suggested Citation

  • Marques, Carlos Robalo & Neves, Pedro Duarte & da Silva, Afonso Goncalves, 2002. "Why should Central Banks avoid the use of the underlying inflation indicator?," Economics Letters, Elsevier, vol. 75(1), pages 17-23, March.
    • Handle: RePEc:eee:ecolet:v:75:y:2002:i:1:p:17-23
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    References listed on IDEAS

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    1. Michael F. Bryan & Stephen G. Cecchetti & Rodney L. Wiggins, 1997. "Efficient inflation estimation," Working Papers (Old Series) 9707, Federal Reserve Bank of Cleveland.
    2. Robalo Marques, Carlos & Duarte Neves, Pedro & Morais Sarmento, Luis, 2003. "Evaluating core inflation indicators," Economic Modelling, Elsevier, vol. 20(4), pages 765-775, July.
    3. Alan S. Blinder, 1982. "The Anatomy of Double-Digit Inflation in the 1970s," NBER Chapters, in: Inflation: Causes and Effects, pages 261-282, National Bureau of Economic Research, Inc.
    4. Luis J. Álvarez & María de los Llanos Matea, 1999. "Underlying Inflation Measures in Spain," Working Papers 9911, Banco de España.
    5. Michael F. Bryan & Stephen G. Cecchetti, 1994. "Measuring Core Inflation," NBER Chapters, in: Monetary Policy, pages 195-219, National Bureau of Economic Research, Inc.
    6. Freeman, Donald G., 1998. "Do core inflation measures help forecast inflation?," Economics Letters, Elsevier, vol. 58(2), pages 143-147, February.
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    Citations

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    Cited by:

    1. Ivan Roberts, 2005. "Underlying Inflation: Concepts, Measurement and Performance," RBA Research Discussion Papers rdp2005-05, Reserve Bank of Australia.
    2. Robert Dixon & G.C. Lim, 2004. "Underlying Inflation in Australia: Are the Existing Measures Satisfactory?," The Economic Record, The Economic Society of Australia, vol. 80(251), pages 373-386, December.
    3. Roseline Nyakerario Misati & Esman Morekwa Nyamongo & Isaac Mwangi, 2013. "Commodity price shocks and inflation in a net oil-importing economy," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 37(2), pages 125-148, June.
    4. Ribba, Antonio, 2003. "Permanent-transitory decompositions and traditional measures of core inflation," Economics Letters, Elsevier, vol. 81(1), pages 109-116, October.
    5. Belbute, José Manuel, 2013. "Is the Euro-Area core price index really more persistent than the food and energy price indexes?," Research in Economics, Elsevier, vol. 67(4), pages 307-315.
    6. Jamie Armour, 2006. "An Evaluation of Core Inflation Measures," Staff Working Papers 06-10, Bank of Canada.
    7. Robalo Marques, Carlos, 2004. "Inflation persistence: facts or artefacts?," Working Paper Series 371, European Central Bank.
    8. Baqaee, David, 2010. "Using wavelets to measure core inflation: The case of New Zealand," The North American Journal of Economics and Finance, Elsevier, vol. 21(3), pages 241-255, December.
    9. Maria Arrazola & Jose de Hevia, 2008. "A simple inflation indicator for the euro zone," Applied Economics, Taylor & Francis Journals, vol. 40(18), pages 2387-2394.
    10. Durai, S. Raja Sethu & Ramachandran, M., 2007. "Core inflation for India," Journal of Asian Economics, Elsevier, vol. 18(2), pages 365-383, April.
    11. Piotr Wiesiolek & Anna Kosior, 2010. "To what extent can we trust core inflation measures? The experience of CEE countries," BIS Papers chapters, in: Bank for International Settlements (ed.), Measurement of inflation and the Philippine monetary policy framework, volume 49, pages 297-323, Bank for International Settlements.
    12. Jakob de Haan & Marco Hoeberichts & Renske Maas & Federica Teppa, 2016. "Inflation in the euro area and why it matters," DNB Occasional Studies 1403, Netherlands Central Bank, Research Department.
    13. Mr. Scott Roger & Mr. Mark R. Stone, 2005. "On Target? the International Experience with Achieving Inflation Targets," IMF Working Papers 2005/163, International Monetary Fund.

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