IDEAS home Printed from https://ideas.repec.org/p/ptu/wpaper/w200003.html
   My bibliography  Save this paper

Evaluating Core Inflation Indicators

Author

Abstract

This paper proposes testable conditions that core inflation measures should satisfy. Trend inflation indicators calculated by Banco de Portugal are tested against this background. The major conclusion is that the so-called “underlying inflation”, the “10% trimmed mean”, and the “25% trimmed mean” do not meet the proposed conditions. However, they are satisfied by the “37-month centred moving average”, the “first principal component” and the “standard deviation weighted CPI” indicators. Yet, only the last two indicators can be used as useful core inflation measures, as the first one is not computable in real time.

Suggested Citation

  • Pedro Duarte Neves, 2000. "Evaluating Core Inflation Indicators," Working Papers w200003, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w200003
    as

    Download full text from publisher

    File URL: https://www.bportugal.pt/sites/default/files/anexos/papers/wp200003.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. דר אברהם כרמלי & גב נעמה שמיר וגב לילי יצחקי, 1999. "מתחברים לנוער מנותק," Working Papers 191, National Insurance Institute of Israel.
    2. Christine Gartner & Gert Wehinger, 1998. "Core Inflation in Selected European Union Countries," Working Papers 33, Oesterreichische Nationalbank (Austrian Central Bank).
    3. 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.
    4. Robalo Marques, Carlos & Duarte Neves, Pedro & Morais Sarmento, Luis, 2003. "Evaluating core inflation indicators," Economic Modelling, Elsevier, vol. 20(4), pages 765-775, July.
    5. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 293-335, October.
    6. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
    7. Hasan Bakhshi & Tony Yates, 1999. "To trim or not to trim? An application of a trimmmed mean inflation estimator to the United Kingdom," Bank of England working papers 97, Bank of England.
    8. Luis J. Álvarez & María de los Llanos Matea, 1999. "Underlying Inflation Measures in Spain," Working Papers 9911, Banco de España.
    9. אסתר טולידנו, 1999. "מקבלי דמי אבטלה בשנת 1998," Working Papers 385, National Insurance Institute of Israel.
    10. Michael F. Bryan & Stephen G. Cecchetti, 1994. "Measuring Core Inflation," NBER Chapters, in: Monetary Policy, pages 195-219, National Bureau of Economic Research, Inc.
    11. repec:onb:oenbwp:y::i:33:b:1 is not listed on IDEAS
    12. חנה וייל, 1995. "סיעוד במגזר הערבי," Working Papers 397, National Insurance Institute of Israel.
    13. Fischer, Andreas M, 1989. "Unit Roots and Survey Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(4), pages 451-463, November.
    14. אסתר טולידנו, 1995. "מקבלי דמי אבטלה בשנת 1994," Working Papers 444, National Insurance Institute of Israel.
    15. Freeman, Donald G., 1998. "Do core inflation measures help forecast inflation?," Economics Letters, Elsevier, vol. 58(2), pages 143-147, February.
    16. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    17. אסתר טולדנו, 1997. "מקבלי דמי אבטלה בשנת 1996," Working Papers 521, National Insurance Institute of Israel.
    18. Scott Roger, 1997. "A robust measure of core inflation in New Zealand, 1949-96," Reserve Bank of New Zealand Discussion Paper Series G97/7, Reserve Bank of New Zealand.
    19. Stephen G. Cecchetti, 1997. "Measuring short-run inflation for central bankers," Review, Federal Reserve Bank of St. Louis, issue May, pages 143-155.
    20. 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.
    21. Pedro Duarte Neves & Carlos Coimbra, 1997. "Trend inflation indicators," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    22. Thérèse Laflèche, 1997. "Statistical measures of the trend rate of inflation," Bank of Canada Review, Bank of Canada, vol. 1997(Autumn), pages 29-47.
    23. דר עמנואל חיגר, 1999. "חינוך מיני לנוער חרש," Working Papers 178, National Insurance Institute of Israel.
    24. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
    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. 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.
    2. Mick Silver, 2006. "Core Inflation Measures and Statistical Issues in Choosing Among Them," IMF Working Papers 2006/097, International Monetary Fund.
    3. 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.
    4. repec:bla:germec:v:4:y:2003:i::p:269-306 is not listed on IDEAS
    5. 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.
    6. Zelda Blignaut & Greg Farrell & Victor Munyama & Logan Rangasamy, 2009. "A Note On The Trimmed Mean Measure Of Core Inflation In South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 77(4), pages 538-552, December.
    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. Lei Lei Song, 2003. "The Role of the Unit of Analysis in Tax Policy Reform Evaluations," Melbourne Institute Working Paper Series wp2003n29, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    9. Jamie Armour, 2006. "An Evaluation of Core Inflation Measures," Staff Working Papers 06-10, Bank of Canada.
    10. 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.
    11. Muhammad Nadim Hanif & Javaid Iqbal & Syed Hamza Ali & Muhammad Abdus Salam, 2020. "Denoised Inflation: A New Measure of Core Inflation," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(2), pages 131-154.
    12. Souvik Gupta & Mr. Magnus Saxegaard, 2009. "Measures of Underlying Inflation in Sri Lanka," IMF Working Papers 2009/167, International Monetary Fund.
    13. Abdul Aleem & Amine Lahiani, 2011. "Estimation and evaluation of core inflation measures," Applied Economics, Taylor & Francis Journals, vol. 43(25), pages 3619-3629.
    14. Alan K. Detmeister, 2011. "The usefulness of core PCE inflation measures," Finance and Economics Discussion Series 2011-56, Board of Governors of the Federal Reserve System (U.S.).
    15. Todd E. Clark, 2001. "Comparing measures of core inflation," Economic Review, Federal Reserve Bank of Kansas City, vol. 86(Q II), pages 5-31.
    16. Durai, S. Raja Sethu & Ramachandran, M., 2007. "Core inflation for India," Journal of Asian Economics, Elsevier, vol. 18(2), pages 365-383, April.
    17. 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.
    18. Scott Roger, 1998. "Core inflation: concepts, uses and measurement," Reserve Bank of New Zealand Discussion Paper Series G98/9, Reserve Bank of New Zealand.
    19. Lei Lei Song, 2005. "Do underlying measures of inflation outperform headline rates? Evidence from Australian data," Applied Economics, Taylor & Francis Journals, vol. 37(3), pages 339-345.
    20. 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.
    21. 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.

    More about this item

    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:ptu:wpaper:w200003. 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: DEE-NTD (email available below). General contact details of provider: https://edirc.repec.org/data/bdpgvpt.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.