IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/67105.html
   My bibliography  Save this paper

Analysing Core Inflation in India: A Structural VAR Approach

Author

Listed:
  • Goyal, Ashima
  • Pujari, Ayan Kumar

Abstract

Effective inflation targeting requires careful selection of the inflation target. It is necessary to leave out noisy elements, which monetary policy cannot control, but this exclusion should not be done in an ad hoc way. Rather core inflation should be determined from the structure of the economy. This paper estimates core inflation for India using Structural Vector Autoregression (SVAR). This method is based on both theory and the structure of the economy. Monthly data for wholesale price index (WPI) and index of industrial production (IIP) has been used, covering a long time span from January 1971 to July 2004. We analyze the impulse responses of inflation and output, test for several time series properties of core inflation and carry out a number of Granger causality tests between headline inflation, core inflation, output and a monetary aggregate.

Suggested Citation

  • Goyal, Ashima & Pujari, Ayan Kumar, 2005. "Analysing Core Inflation in India: A Structural VAR Approach," MPRA Paper 67105, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:67105
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/67105/1/MPRA_paper_67105.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
    2. Marianne Nessén & Ulf Söderström, 2001. "Core Inflation and Monetary Policy," International Finance, Wiley Blackwell, vol. 4(3), pages 401-439.
    3. Michael F. Bryan & Stephen G. Cecchetti, 1994. "Measuring Core Inflation," NBER Chapters, in: Monetary Policy, pages 195-219, National Bureau of Economic Research, Inc.
    4. Hilde Christiane Bjørnland, 2001. "Identifying domestic and imported core inflation," Applied Economics, Taylor & Francis Journals, vol. 33(14), pages 1819-1831.
    5. Quah, Danny, 1995. "Misinterpreting the dynamic effects of aggregate demand and supply disturbances," Economics Letters, Elsevier, vol. 49(3), pages 247-250, September.
    6. Michael F. Bryan & Stephen G. Cecchetti, 1999. "The Monthly Measurement of Core Inflation in Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(1), pages 77-101, May.
    7. Freeman, Donald G., 1998. "Do core inflation measures help forecast inflation?," Economics Letters, Elsevier, vol. 58(2), pages 143-147, February.
    8. repec:bla:intfin:v:4:y:2001:i:3:p:401-39 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ashima Goyal & Arjun Singh, 2007. "Through a Glass Darkly," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 1(2), pages 139-166, April.
    2. Sujata Kar, 2010. "A Periodic Autoregressive Model of Indian WPI Inflation," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 4(3), pages 279-292, August.
    3. Ashima Goyal & Arjun Singh, 2006. "Through a Glass Darkly - Deciphering the Impact of Oil Price Shocks," Macroeconomics Working Papers 22374, East Asian Bureau of Economic Research.
    4. Pami Dua & Upasna Gaur, 2010. "Determination of inflation in an open economy Phillips curve framework: the case of developed and developing Asian countries," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 3(1), pages 33-51.

    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. Bagliano, Fabio C. & Morana, Claudio, 2003. "Measuring US core inflation: A common trends approach," Journal of Macroeconomics, Elsevier, vol. 25(2), pages 197-212, June.
    2. Durai, S. Raja Sethu & Ramachandran, M., 2007. "Core inflation for India," Journal of Asian Economics, Elsevier, vol. 18(2), pages 365-383, April.
    3. repec:bla:germec:v:4:y:2003:i::p:269-306 is not listed on IDEAS
    4. Ashima Goyal & Arjun Singh, 2006. "Through a glass darkly: Deciphering the impact of oil price shocks," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2006-012, Indira Gandhi Institute of Development Research, Mumbai, India.
    5. Goyal, Ashima & Pujari, Ayan Kumar, 2005. "Identifying long run supply curve of India," MPRA Paper 24021, University Library of Munich, Germany.
    6. Fabio DI DIO & Francesco FELICI, 2009. "Estimating Core Inflation In Norway," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 4(3(9)_Fall).
    7. Hansson, Jesper, 1999. "Calculation of aggregate demand and supply disturbances from a common trends model," Economics Letters, Elsevier, vol. 65(3), pages 309-314, December.
    8. Mio, Hitoshi, 2002. "Identifying Aggregate Demand and Aggregate Supply Components of Inflation Rate: A Structural Vector Autoregression Analysis for Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(1), pages 33-56, January.
    9. Ribba, Antonio, 2003. "Permanent-transitory decompositions and traditional measures of core inflation," Economics Letters, Elsevier, vol. 81(1), pages 109-116, October.
    10. Hahn, Elke, 2003. "Pass-through of external shocks to euro area inflation," Working Paper Series 243, European Central Bank.
    11. 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.
    12. Bermingham, Colin, 2006. "How Useful is Core Inflation for Forecasting Headline Inflation?," Research Technical Papers 11/RT/06, Central Bank of Ireland.
    13. 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.
    14. van Zandweghe, Willem & Gottschalk, Jan, 2001. "Do Bivariate SVAR Models with Long-Run Identifying Restrictions Yield Reliable Results? The Case of Germany," Kiel Working Papers 1068, Kiel Institute for the World Economy (IfW Kiel).
    15. Pascal Jacquinot, 2001. "L’inflation sous-jacente en France, en Allemagne et Royaume-Uni," Économie et Prévision, Programme National Persée, vol. 147(1), pages 171-185.
    16. 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.
    17. Le Bihan, Herve & Sedillot, Franck, 2000. "Do core inflation measures help forecast inflation?: Out-of-sample evidence from French data," Economics Letters, Elsevier, vol. 69(3), pages 261-266, December.
    18. Riccardo Cristadoro & Mario Forni & Lucrezia Reichlin & Giovanni Veronese, 2001. "A core inflation index for the euro area," Temi di discussione (Economic working papers) 435, Bank of Italy, Economic Research and International Relations Area.
    19. Martha Misas Arango & Enrique López Enciso & Juana Téllez Corredor & José Fernando Escobar, 2005. "La Inflación Subyacente en Colombia: Un Enfoque de Tendencias Estocásticas Comunes Asociadas a un VEC Estructural," Borradores de Economia 324, Banco de la Republica de Colombia.
    20. Khan, Mahmood ul Hassan & Hanif, Muhammad Nadim, 2012. "Role of Demand and Supply Shocks in Driving Inflation: A Case Study of Pakistan," MPRA Paper 48884, University Library of Munich, Germany.
    21. Ivan Roberts, 2005. "Underlying Inflation: Concepts, Measurement and Performance," RBA Research Discussion Papers rdp2005-05, Reserve Bank of Australia.

    More about this item

    Keywords

    Inflation Targeting; Core Inflation; Structural VAR;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    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:pra:mprapa:67105. 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: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.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.