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UCM: A measure of core inflation

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  • Sujata Kar

Abstract

The primary objective of this paper is to establish the superiority of Unobserved Components Models (UCMs) as a measure of core inflation over alternative econometric methods, namely Structural Vector Autoregressive (SVAR). UCMs have the advantage of allowing the policy makers to decide which components of the headline inflation should be defined as permanent and which one as transitory on the basis of their duration. The paper also comments on the comparative performance of annually differenced series over seasonally differenced series. The UCMs are found to generate reasonable medium to long-term out-of-sample forecasts of Wholesale Price Index (WPI) inflation.

Suggested Citation

  • Sujata Kar, 2010. "UCM: A measure of core inflation," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 3(3), pages 248-269.
    • Handle: RePEc:ids:ijmefi:v:3:y:2010:i:3:p:248-269
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    Cited by:

    1. Ibrahim Abdulhamid Danlami, 2019. "Inflation Persistence in the West African Commonwealth Countries," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 5(3), pages 80-89, September.
    2. Bhatt, Vipul & Kishor, N. Kundan, 2015. "Are all movements in food and energy prices transitory? Evidence from India," Journal of Policy Modeling, Elsevier, vol. 37(1), pages 92-106.

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