IDEAS home Printed from https://ideas.repec.org/p/bca/bocatr/89.html
   My bibliography  Save this paper

Core Inflation

Author

Listed:
  • Seamus Hogan
  • Marianne Johnson
  • Thérèse Laflèche

Abstract

The Bank of Canada uses core CPI inflation, the year-over-year rate of change of the consumer price index excluding food, energy, and the effects of changes in indirect taxes, as the operational guide for monetary policy. In this report we study the concept and measurement of core or underlying inflation more generally by examining several alternative measures of core inflation, from the viewpoint that core inflation is a tool for policy purposes, either as an indicator of current and future trends in inflation, or as a viable target for monetary policy. A simple model of price determination is proposed that defines the core conceptually, and illustrates the process by which aggregate inflation rates may differ from the core. As a measure of inflation for policy purposes, core inflation is useful to the extent that it can be measured accurately. Therefore, following a discussion of conceptual issues, the report's focus narrows and we introduce the various measures of core inflation, concluding with a comparative evaluation of those measures. We find the alternatives quite similar in many respects. However, a closer assessment based on their suitability to various policy purposes suggests that different measures do well along different dimensions.

Suggested Citation

  • Seamus Hogan & Marianne Johnson & Thérèse Laflèche, 2001. "Core Inflation," Technical Reports 89, Bank of Canada.
    • Handle: RePEc:bca:bocatr:89
    as

    Download full text from publisher

    File URL: https://www.bankofcanada.ca/wp-content/uploads/2010/01/tr89.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Michael F. Bryan & Stephen G. Cecchetti, 1993. "The consumer price index as a measure of inflation," Economic Review, Federal Reserve Bank of Cleveland, vol. 29(Q IV), pages 15-24.
    2. Michael F. Bryan & Stephen G. Cecchetti & Rodney L. Wiggins, 1997. "Efficient inflation estimation," Working Papers (Old Series) 9707, Federal Reserve Bank of Cleveland.
    3. Laurence Ball, 1999. "Efficient Rules for Monetary Policy," International Finance, Wiley Blackwell, vol. 2(1), pages 63-83, April.
    4. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
    5. Svensson, Lars E. O., 1997. "Inflation forecast targeting: Implementing and monitoring inflation targets," European Economic Review, Elsevier, vol. 41(6), pages 1111-1146, June.
    6. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-853, October.
    7. Scott Roger, 1998. "Core inflation: concepts, uses and measurement," Reserve Bank of New Zealand Discussion Paper Series G98/9, Reserve Bank of New Zealand.
    8. Christine Gartner & Gert Wehinger, 1998. "Core Inflation in Selected European Union Countries," Working Papers 33, Oesterreichische Nationalbank (Austrian Central Bank).
    9. Shiratsuka, Shigenori, 1997. "Inflation Measures for Monetary Policy: Measuring the Underlying Inflation Trend and Its Implication for Monetary Policy Implementation," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 15(2), pages 1-26, December.
    10. Jamie Armour & Joseph Atta-Mensah & Walter Engert & Scott Hendry, 1996. "A Distant-Early-Warning Model of Inflation Based on M1 Disequilibria," Staff Working Papers 96-5, Bank of Canada.
    11. Stephen G. Cecchetti, 1997. "Measuring short-run inflation for central bankers," Review, Federal Reserve Bank of St. Louis, issue May, pages 143-155.
    12. Pierre St-Amant & David Tessier, 2000. "Résultats empiriques multi-pays relatifs à l'impact des cibles d'inflation sur la crédibilité de la politique monétaire," Canadian Public Policy, University of Toronto Press, vol. 26(3), pages 295-310, September.
    13. 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.
    14. Michael F. Bryan & Stephen G. Cecchetti, 1999. "Inflation And The Distribution Of Price Changes," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 188-196, May.
    15. Nicholas Rowe & James Yetman, 2000. "Identifying Policy-makers' Objectives: An Application to the Bank of Canada," Staff Working Papers 00-11, Bank of Canada.
    16. Hilde Christiane Bjørnland, 1997. "Estimating Core Inflation - The Role of Oil Price Shocks and Imported Inflation," Discussion Papers 200, Statistics Norway, Research Department.
    17. Parkin, Michael, 1984. "On core inflation by Otto Eckstein : A review essay," Journal of Monetary Economics, Elsevier, vol. 14(2), pages 251-264, September.
    18. Michael F. Bryan & Christopher J. Pike, 1991. "Median price changes: an alternative approach to measuring current monetary inflation," Economic Commentary, Federal Reserve Bank of Cleveland, issue Dec.
    19. Thérèse Laflèche, 1997. "Mesures du taux d'inflation tendanciel," Staff Working Papers 97-9, Bank of Canada.
    20. Joseph Atta-Mensah, 1996. "A Modified P*-Model of Inflation Based on M1," Staff Working Papers 96-15, Bank of Canada.
    21. Nicholas Ricketts & David Rose, "undated". "Inflation, Learning And Monetary Policy Regimes In The G-7 Economies," Staff Working Papers 95-6, Bank of Canada.
    22. Jeffrey J. Hallman & Richard D. Porter & David H. Small, 1989. "M2 per unit of potential GNP as an anchor for the price level," Staff Studies 157, Board of Governors of the Federal Reserve System (U.S.).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jamie Armour, 2006. "An Evaluation of Core Inflation Measures," Staff Working Papers 06-10, Bank of Canada.
    2. Landau, Bettina, 2000. "Core inflation rates: a comparison of methods based on west German data," Discussion Paper Series 1: Economic Studies 2000,04, Deutsche Bundesbank.
    3. Scott Roger, 1998. "Core inflation: concepts, uses and measurement," Reserve Bank of New Zealand Discussion Paper Series G98/9, Reserve Bank of New Zealand.
    4. Mark A. Wynne, 2008. "Core inflation: a review of some conceptual issues," Review, Federal Reserve Bank of St. Louis, vol. 90(May), pages 205-228.
    5. Mick Silver, 2006. "Core Inflation Measures and Statistical Issues in Choosing Among Them," IMF Working Papers 2006/097, International Monetary Fund.
    6. Mark A. Wynne, 2008. "Core inflation: a review of some conceptual issues," Review, Federal Reserve Bank of St. Louis, issue May, pages 205-228.
    7. Andrade, Isabel & O'Brien, Raymond, 2007. "A measure of core inflation in the UK," Discussion Paper Series In Economics And Econometrics 0708, Economics Division, School of Social Sciences, University of Southampton.
    8. Meyler, Aidan, 1999. "A Statistical Measure Of Core Inflation," Research Technical Papers 2/RT/99, Central Bank of Ireland.
    9. Pelinescu, Elena & Dospinescu, Andrei Silviu, 2008. "Alternative Measures of Core Inflation in Romania," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 5(1), pages 134-148, March.
    10. Vega, Juan Luis & Wynne, Mark A., 2001. "An evaluation of some measures of core inflation for the euro area," Working Paper Series 53, European Central Bank.
    11. Gagik G. Aghajanyan, 2005. "Core inflation in a small transition country: choice of optimal measures," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 2(1), pages 83-110, June.
    12. repec:bla:germec:v:4:y:2003:i::p:269-306 is not listed on IDEAS
    13. Durai, S. Raja Sethu & Ramachandran, M., 2007. "Core inflation for India," Journal of Asian Economics, Elsevier, vol. 18(2), pages 365-383, April.
    14. Vega, Juan Luis & Wynne, Mark A., 2001. "An evaluation of some measures of core inflation for the euro area," Working Paper Series 0053, European Central Bank.
    15. Dowd, Kevin & Cotter, John & Loh, Lixia, 2011. "U.S. Core Inflation: A Wavelet Analysis," Macroeconomic Dynamics, Cambridge University Press, vol. 15(4), pages 513-536, September.
    16. Juan‐Luis Vega & Mark A. Wynne, 2003. "A First Assessment of Some Measures of Core Inflation for the Euro Area," German Economic Review, Verein für Socialpolitik, vol. 4(3), pages 269-306, August.
    17. 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.
    18. Luis J. Álvarez & María de los Llanos Matea, 1999. "Underlying Inflation Measures in Spain," Working Papers 9911, Banco de España.
    19. Luc Aucremanne, 2000. "The use of robust estimators as measures of core inflation," Working Paper Research 02, National Bank of Belgium.
    20. Ivan Roberts, 2005. "Underlying Inflation: Concepts, Measurement and Performance," RBA Research Discussion Papers rdp2005-05, Reserve Bank of Australia.
    21. Carlos Felipe Jaramillo & Edgar Caicedo & Adolfo Cobo & Andrés González & Munir Jalil & Juan Manuel Julio & Luis Fernando Melo, 1999. "La Inflación Básica en Colombia: Evaluación de Indicadores Alternativos," Borradores de Economia 136, Banco de la Republica de Colombia.

    More about this item

    Keywords

    Inflation and prices;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bca:bocatr:89. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/bocgvca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.