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Measuring core inflation

Author

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  • Rachel Holden

    (Reserve Bank of New Zealand)

Abstract

Under the Policy Targets Agreement, the Reserve Bank is required to keep future CPI inflation outcomes between 1 percent and 3 percent on average over the medium term. The headline CPI inflation rate provides some information on the strength of current and future inflation pressures, but can often be clouded by temporary fluctuations. Core inflation measures attempt to abstract from these temporary fluctuations to better inform us of the underlying trends in inflation. This article outlines a number of criteria that can be used to assess the relative merits of possible measures of core inflation. It then analyses a range of alternative core inflation measures against these criteria and draws some conclusions as to which measures might best serve as core inflation indicators in New Zealand.

Suggested Citation

  • Rachel Holden, 2006. "Measuring core inflation," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 69, pages 1-7, December.
    • Handle: RePEc:nzb:nzbbul:december2006:2
    as

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    File URL: http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulletins/2006/2006dec69-4holden.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
    3. 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.
    4. Cogley, Timothy, 2002. "A Simple Adaptive Measure of Core Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 94-113, February.
    5. Kapetanios, George, 2004. "A note on modelling core inflation for the UK using a new dynamic factor estimation method and a large disaggregated price index dataset," Economics Letters, Elsevier, vol. 85(1), pages 63-69, October.
    6. George Kapetanios, 2002. "Modelling Core Inflation for the UK Using a New Dynamic Factor Estimation Method and a Large Disaggregated Price Index Dataset," Working Papers 471, Queen Mary University of London, School of Economics and Finance.
    7. Domenico Giannone & Troy D. Matheson, 2007. "A New Core Inflation Indicator for New Zealand," International Journal of Central Banking, International Journal of Central Banking, vol. 3(4), pages 145-180, December.
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    Cited by:

    1. Satish Ranchhod, 2013. "Measures of New Zealand core inflation," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 76, pages 3-11, March.
    2. Rahmanov, Ramiz & Adigozalov, Shaig & Huseynov, Salman, 2013. "Azərbaycan Mərkəzi Bankının inflyasiya hədəfi: Baza yoxsa manşet inflyasiya? [The target of the Central Bank of Azerbaijan: Core or headline inflation?]," MPRA Paper 69825, University Library of Munich, Germany.
    3. Chris Bloor, 2009. "The use of statistical forecasting models at the Reserve Bank of New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 72, pages 21-26, June.

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