A Comprehensive Evaluation of Measures of Core Inflation for Canada

Mikael Khan, Louis Morel and Patrick Sabourin

Discussion Papers from Bank of Canada

Abstract: This paper evaluates the usefulness of various measures of core inflation for the conduct of monetary policy. Traditional exclusion-based measures of core inflation are found to perform relatively poorly across a range of evaluation criteria, in part due to their inability to filter unanticipated transitory shocks. In contrast, measures such as the trimmed mean and the common component of CPI perform favorably, since they better capture persistent price movements and tend to move with macroeconomic drivers. All measures of core inflation, however, have limitations – consequently, there is merit in monitoring a set of measures. Moreover, core inflation measures are best viewed as complements to, rather than substitutes for, the thorough analysis of inflation and capacity pressures that informs the monetary policy process.

Keywords: Inflation and prices; Monetary policy framework (search for similar items in EconPapers)
JEL-codes: E31 E52 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2015
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocadp:15-12

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