Statistical measures (or limited-influence estimators) of core inflation remove, or reduce the weight of, those components with extreme price changes, based on the premise that extreme price changes are not indicative of the persistent component of inflation.
Among the three limited-influence estimators we consider - the CP1 excluding food and energy, the IS-percent trimmed mean, and the median - we find that the median has the strongest relationship with past money growth and provides the most accurate forecast of future inflation.
Section 6.3 presents evidence as to whether our measures conform to a key implication of Ball and Mankiw’s view.
Also, as investment portfolios and home prices rise, asset inflation occurs, which can provide additional money for consumers to spend.
The GDP price deflator measures the changes in prices for all of the goods and services produced in an economy. Empirical studies find that the link between inflation and economic slack has weakened in recent decades, a development that could hamper monetary policymakers as they aim to achieve their inflation objective.
Measuring Core Inflation 283 where - Pm is current price of item I, Poi is the base price of item I, W. is the weight of item I and m the number of items in the basket.
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Existing measures of core inflation ignore a part of ‘should be’ the core inflation. 4303 Issued in March 1993 NBER Program(s):Monetary Economics In this paper, we investigate the use of limited-information estimators as measures of core inflation. By National Bureau of Economic Research, 1050 Massachusetts Ave., Moreover, unlike the CPI, the limited-influence estimators do not forecast future money growth, suggesting that monetary policy has often accommodated supply shocks that we measure as the difference between core inflation and the CPI. We use cookies to help provide and enhance our service and tailor content.
An analysis of the use of limited-information estimators as measures of core inflation, showing that these estimators, such as the median of the cross-sectional distribution of inflation, have a higher correlation with past money growth and deliver improved forecasts of future inflation relative to the Consumer Price Index.Suggested citation: Bryan, Michael, and Stephen Cecchetti, 1993.
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Inflation causes the value of money or income to decrease in comparison to the prices of basic goods and services. We show that while the role of economic slack has diminished, economic growth has become a significant driver of inflation dynamics, indicating that the link between inflation and economic activity remains but the relevant gauge of activity has changed.
w4303, Available at SSRN:
3.
Among the three limited-influence estimators we consider - the CP1 excluding food and energy, the IS-percent trimmed mean, and the median - we find that the median has the strongest relationship with past money growth and provides the most accurate forecast of future inflation.
197 Measuring Core Inflation lated from thirty-six components of the CPI over a sample beginning in Febru- ary 1967 and ending in December 1992. By
If prices for goods and services increase over time, but consumer income doesn't change, consumers will have less purchasing power.
core inflation measure is based on the exclusion method because it is A. It is important to measure core inflation because it reflects the relationship between the price of goods and services and the level of consumer income.
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