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Why Should Central Banks Avoid the Use of the Underlying Inflation Indicator?

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Abstract

This paper assesses the usefulness of the commonly used underlying inflation indicator, in light of the criteria proposed in Marques et al. (2000). Empirical evidence for a group of six countries strongly suggets that the use of underlying inflation as an indicator of trend inflation should be avoided.

Suggested Citation

  • Pedro Duarte Neves, 2000. "Why Should Central Banks Avoid the Use of the Underlying Inflation Indicator?," Working Papers w200005, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w200005
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    References listed on IDEAS

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    1. Robalo Marques, Carlos & Duarte Neves, Pedro & Morais Sarmento, Luis, 2003. "Evaluating core inflation indicators," Economic Modelling, Elsevier, vol. 20(4), pages 765-775, July.
    2. Alan S. Blinder, 1982. "The Anatomy of Double-Digit Inflation in the 1970s," NBER Chapters, in: Inflation: Causes and Effects, pages 261-282, National Bureau of Economic Research, Inc.
    3. Luis J. Álvarez & María de los Llanos Matea, 1999. "Underlying Inflation Measures in Spain," Working Papers 9911, Banco de España.
    4. Michael F. Bryan & Stephen G. Cecchetti, 1994. "Measuring Core Inflation," NBER Chapters, in: Monetary Policy, pages 195-219, National Bureau of Economic Research, Inc.
    5. Michael F. Bryan & Stephen G. Cecchetti & Rodney L. Wiggins II, 1997. "Efficient Inflation Estimation," NBER Working Papers 6183, National Bureau of Economic Research, Inc.
    6. Freeman, Donald G., 1998. "Do core inflation measures help forecast inflation?," Economics Letters, Elsevier, vol. 58(2), pages 143-147, February.
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    Cited by:

    1. Ivan Roberts, 2005. "Underlying Inflation: Concepts, Measurement and Performance," RBA Research Discussion Papers rdp2005-05, Reserve Bank of Australia.
    2. 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.
    3. Robalo Marques, Carlos, 2004. "Inflation persistence: facts or artefacts?," Working Paper Series 371, European Central Bank.
    4. Belbute, José Manuel, 2013. "Is the Euro-Area core price index really more persistent than the food and energy price indexes?," Research in Economics, Elsevier, vol. 67(4), pages 307-315.
    5. Baqaee, David, 2010. "Using wavelets to measure core inflation: The case of New Zealand," The North American Journal of Economics and Finance, Elsevier, vol. 21(3), pages 241-255, December.
    6. Piotr Wiesiolek & Anna Kosior, 2010. "To what extent can we trust core inflation measures? The experience of CEE countries," BIS Papers chapters, in: Bank for International Settlements (ed.), Measurement of inflation and the Philippine monetary policy framework, volume 49, pages 297-323, Bank for International Settlements.
    7. Mr. Scott Roger & Mr. Mark R. Stone, 2005. "On Target? the International Experience with Achieving Inflation Targets," IMF Working Papers 2005/163, International Monetary Fund.
    8. Roseline Nyakerario Misati & Esman Morekwa Nyamongo & Isaac Mwangi, 2013. "Commodity price shocks and inflation in a net oil-importing economy," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 37(2), pages 125-148, June.
    9. Ribba, Antonio, 2003. "Permanent-transitory decompositions and traditional measures of core inflation," Economics Letters, Elsevier, vol. 81(1), pages 109-116, October.
    10. Jamie Armour, 2006. "An Evaluation of Core Inflation Measures," Staff Working Papers 06-10, Bank of Canada.
    11. Maria Arrazola & Jose de Hevia, 2008. "A simple inflation indicator for the euro zone," Applied Economics, Taylor & Francis Journals, vol. 40(18), pages 2387-2394.
    12. Durai, S. Raja Sethu & Ramachandran, M., 2007. "Core inflation for India," Journal of Asian Economics, Elsevier, vol. 18(2), pages 365-383, April.
    13. Jakob de Haan & Marco Hoeberichts & Renske Maas & Federica Teppa, 2016. "Inflation in the euro area and why it matters," DNB Occasional Studies 1403, Netherlands Central Bank, Research Department.

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