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How Useful is Core Inflation for Forecasting Headline Inflation?

Colin Bermingham
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Colin Bermingham: Central Bank and Financial Services Authority of Ireland

No 11/RT/06, Research Technical Papers from Central Bank of Ireland

Abstract: The paper constructs various core inflation measures. These include various trimmed means using highly disaggregated data and a structural VAR estimate of core inflation for Ireland. The ability of these core inflation measures to forecast future headline inflation is compared using a simple regression model. An ARIMA model fitted to the headline inflation rate is used to construct the benchmark forecast. The forecasts from the ARIMA model are most accurate over short time horizons for monthly data. The structural VAR based estimate is most accurate over longer time horizons. For quarterly data, the structural VAR provides the optimal forecast over all time horizons considered.

JEL-codes: E31 E37 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2006-09
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https://centralbank.ie/docs/default-source/publica ... ingham).pdf?sfvrsn=4 (application/pdf)

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