An Evaluation of Some Measures of Core Inflation for the Euro Area

43 Pages Posted: 7 Feb 2003

See all articles by Juan Luis Vega-Croissier

Juan Luis Vega-Croissier

Europaische Zentralbank

Mark A. Wynne

Federal Reserve Bank of Dallas

Date Written: April 2001

Abstract

We examine two measures of core inflation which have been proposed in recent years: the limited-influence estimators of core inflation pioneered by Bryan and Cecchetti (1994); and the Edgeworth or variance-weighted price index discussed by Diewert (1995). We compare these measures with traditional "Ex. Food & Energy"-type measures and evaluate them on the basis of two criteria: their ability to track movements in trend inflation; and their ability to predict future headline inflation. We do find evidence that traditional "Ex. Food & Energy"-type measure of core inflation may be dominated by alternative measures and conclude that trimmed-mean measures of core inflation may be a useful input to the monetary policy process. These conclusions, nonetheless, are necessarily tentative and subject to strong caveats due to the short span of data on which inference can be drawn.

Keywords: euro area, HICP, core inflation

JEL Classification: E31

Suggested Citation

Vega-Croissier, Juan Luis and Wynne, Mark A., An Evaluation of Some Measures of Core Inflation for the Euro Area (April 2001). Available at SSRN: https://ssrn.com/abstract=356042 or http://dx.doi.org/10.2139/ssrn.356042

Juan Luis Vega-Croissier (Contact Author)

Europaische Zentralbank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Mark A. Wynne

Federal Reserve Bank of Dallas ( email )

PO Box 655906
Dallas, TX 75265-5906
United States
214-922-5159 (Phone)
214-922-5194 (Fax)

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