A First Assessment of Some Measures of Core Inflation for the Euro Area

Posted: 7 Jan 2004

See all articles by Juan Luis Vega-Croissier

Juan Luis Vega-Croissier

Europaische Zentralbank

Mark A. Wynne

Federal Reserve Bank of Dallas


Core inflation plays an important role in the deliberations of monetary policy-makers. In this paper we evaluate a number of measures of core inflation constructed using euro-area data. In addition to the traditional exclusion-type core measures, we examine two newer ones, documenting their properties and evaluating their performance in terms of their ability to track underlying or trend inflation in real time. We focus on core measures derived from the Harmonized Index of Consumer Prices (HICP) as the European Central Bank has chosen to define its mandate for price stability in terms of this index, and because this is the only index of consumer prices that is compiled in a comparable manner across all members of the European Union. We document significant excess kurtosis in the cross-section distribution of price changes in the euro area, and show that several categories of prices are more volatile than those typically excluded from traditional measures of core inflation. Contrary to what one might expect, traditional measures of core inflation are not significantly less volatile than headline measures. We document the superior performance of alternative measures of core inflation in tracking trend inflation on average, but show that none of the various measures of core gave significant advance warning of the pickup in trend inflation at the beginning of 1999.

Suggested Citation

Vega-Croissier, Juan Luis and Wynne, Mark A., A First Assessment of Some Measures of Core Inflation for the Euro Area. Available at SSRN: https://ssrn.com/abstract=424740

Juan Luis Vega-Croissier (Contact Author)

Europaische Zentralbank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

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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