Measuring Core Inflation

Quah, Danny; Vahey, Shaun P.

doi:10.2307/2235408

Cited by 219 publications

(151 citation statements)

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“…F o r P e e r R e v i e w Several measures, constructed with different methodologies, have been proposed and applied to US and other countries' data: univariate smoothing techniques (Cogley, 2002), purely statistical measures based on cross-section data (Bryan andCecchetti 1993, 1994;Cecchetti, 1997), econometric estimates either based on long-run neutrality restrictions (Quah and Vahey, 1995) or obtained as the long-term forecast from a small-scale system of macroeconomic variables (Cogley and Sargent, 2001;. The shared purpose of all these measures has been well laid out by Bryan and Cecchetti (1994), who define core inflation as the long-run, persistent component of the measured inflation rate, "which is tied in some way to monetary growth" (p.197).…”

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confidence: 99%

Inflation and monetary dynamics in the USA: a quantity-theory approach

Morana¹,

Bagliano

2007

Applied Economics

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Nutzungsbedingungen AbstractIn this paper we investigate the long-run link between inflation and money growth in the US since 1960. A measure of the long-run inflation trend is constructed, which bears the interpreation of "monetary" inflation rate and is directly related to the excess nominal money growth process (money growth less output growth) as postulated by the quantity theory. Consistent with the memory characteristics of the series, their fractional integration and cointegration properties are taken into account in empirical modelling. The proposed measure is then compared with several existing measures of "core inflation", aimed at capturing long-run inflation dynamics but unrelated to money growth. The "monetary" long-run inflation rate performs well in out-of-sample forecasting exercises especially over a two-to three-year horizon, yielding valuable information to monetary policymakers.

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confidence: 99%

Inflation and monetary dynamics in the USA: a quantity-theory approach

Morana¹,

Bagliano

2007

Applied Economics

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“…Underlying this view is the notion that in the long-run, inflation is a monetary phenomenon. Blinder (1997) and Marques et al (2003) identify core inflation as the persistent or durable component of inflation, while Quah and Vahey (1995) define core inflation as the component of measured inflation that has no medium to long-run impact on real output.…”

Section: Alternative Measures Of Core Inflationmentioning

confidence: 99%

Measures of Underlying Inflation in Sri Lanka

Gupta

2009

IMF Working Papers

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This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.During the first half of 2008, Sri Lanka witnessed significantly higher inflation than most other emerging Asian countries. Inflation has since declined amid declining world commodity prices and tight monetary policy. Given the sensitivity to global commodity prices, a core inflation measure could be useful for monetary policy. The purpose of this paper is to compare the performance of Sri Lanka's existing official measure of core inflation against alternative measures. Our findings suggest that the existing measure does contain information about the future path of headline information, but may be inadequate as a communication tool for the Central Bank. JEL Classification Numbers: C50, E31, E52

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“…Other conceptions are surely possible, all of which would be based on structural economic models. For example, Quah and Vahey (1995), motivated by the concept of a long-run vertical Phillips curve, de¯ne core in°ation to be the component of measured in°ation that has no impact on real output in the long run. We shy away from such de¯nitions, as they are highly parametric and therefore unlikely to provide timely evidence on structural breaks in the in°ation process.…”

Section: Core Inflation Measurementmentioning

confidence: 99%

Understanding Inflation: Implications for Monetary Policy

Cecchetti

Groshen

2001

Advances in Macroeconomic Theory

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This paper discusses how optimal monetary policy is affected by differences in the combination of shocks an economy experiences and the rigidities it exhibits. Without both nominal rigidities and economic shocks, monetary policy would be irrelevant. Recognizing this, policymakers increasingly incorporate the understanding gained from new research on rigidities and shocks into both their policy actions and the design of monetary institutions. Specifically, shocks can be predominantly real, affecting relative prices, or primarily nominal, moving the general price level. They may also be big or small, frequent or rare. Similarly, some nominal rigidities are symmetrical, affecting both upward and downward movements equally, while others are asymmetrical, restricting decreases more than increases. After reviewing major trends in the conduct of monetary policy, we describe how the growing theoretical and empirical literature on shocks and rigidities informs three crucial dimensions of monetary policymaking. First, we discuss why trimmed means provide the best measure of core inflation. Second, we outline how rigidities impede policymakers' ability to control inflation.And third, we describe how alternative shock/rigidity combinations create inflation's grease (whereby it improves economic efficiency by speeding adjustment) and sand effects (whereby it distorts price signals) with their contrasting implications for the optimal level of inflation. We conclude by considering some key implications for monetary policy.

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Measuring Core Inflation

Cited by 219 publications

References 9 publications

Inflation and monetary dynamics in the USA: a quantity-theory approach

Inflation and monetary dynamics in the USA: a quantity-theory approach

Measures of Underlying Inflation in Sri Lanka

Understanding Inflation: Implications for Monetary Policy

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