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A statistical measure of core inflation

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  • Meyler, Aidan

Abstract

This paper examines alternative statistically-based measures of core inflation in Ireland over the period 1976-1999. A highly disaggregated (approximately 500 price series) dataset from the Irish HICP is used. The distribution of quarterly price changes is shown, in common with other international studies, to be highly kurtotic (i.e., fat-tailed) and right skewed. This would suggest there is considerable ‘statistical noise’ in the measured inflation rate, motivating the use of ‘limited influence’ estimators of central tendency over the mean measure on the grounds of statistical efficiency. It is found that even a relatively small amount of trim from both ends of the distribution of price changes results in considerable improvement in root mean square error (RMSE) relative to a benchmark measure of core inflation. This improvement is even larger when monthly data are examined.

Suggested Citation

  • Meyler, Aidan, 1999. "A statistical measure of core inflation," MPRA Paper 11362, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:11362
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    References listed on IDEAS

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    9. repec:onb:oenbwp:y::i:33:b:1 is not listed on IDEAS
    10. Stephen G. Cecchetti, 1997. "Measuring short-run inflation for central bankers," Review, Federal Reserve Bank of St. Louis, issue May, pages 143-155.
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    13. Jonathan Kearns, 1998. "The Distribution and Measurement of Inflation," RBA Research Discussion Papers rdp9810, Reserve Bank of Australia.
    14. Mark A. Wynne, 1997. "Measuring short-run inflation for central bankers - commentary," Review, Federal Reserve Bank of St. Louis, issue May, pages 161-167.
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    Cited by:

    1. Bermingham, Colin, 2006. "How Useful is Core Inflation for Forecasting Headline Inflation?," Research Technical Papers 11/RT/06, Central Bank of Ireland.
    2. repec:bla:germec:v:4:y:2003:i::p:269-306 is not listed on IDEAS
    3. Colin Bermingham, 2007. "How Useful is Core Inflation for Forecasting Headline Inflation?," The Economic and Social Review, Economic and Social Studies, vol. 38(3), pages 355-377.
    4. 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.
    5. 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.
    6. 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.
    7. Sadia Tahir, 2003. "Core Inflation Measures for Pakistan," SBP Working Paper Series 04, State Bank of Pakistan, Research Department.
    8. Sartaj Rasool Rather & S. Raja Sethu Durai & M. Ramachandran, 2014. "A New Approach to Construct Core Inflation," Working Papers 2014-091, Madras School of Economics,Chennai,India.
    9. Naresh Kumar Sharma & Motilal Bicchal & Caroline Elliott, 2015. "Measuring core inflation in India: An asymmetric trimmed mean approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 3(1), pages 1014252-101, December.
    10. 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.
    11. Rodolfo Arioli & Colm Bates & Heinz Dieden & Ioana Duca & Roberta Friz & Christian Gayer & Geoff Kenny & Aidan Meyler & Iskra Pavlova, 2016. "EU Consumers’ Quantitative Inflation Perceptions and Expectations: An Evaluation," European Economy - Discussion Papers 038, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    12. Luc Aucremanne & Guy Brys & Peter J Rousseeuw & Anja Struyf & Mia Hubert, 2003. "Inflation, relative prices and nominal rigidities," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 81-105, Bank for International Settlements.
    13. 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.
    14. Luc Aucremanne, 2000. "The use of robust estimators as measures of core inflation," Working Paper Research 02, National Bank of Belgium.

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    More about this item

    Keywords

    core inflation; trimmed mean; Ireland;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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