Core Inflation and Inflation Targeting in a Developing Economy

Luis Rivas
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Luis Rivas: Department of Economics, Vanderbilt University and Banco Central de Nicaragua

No 207, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: This paper is concerned with inflation targeting as a potential monetary policy objective in a developing economy. Using data from Nicaragua, it first studies the extent to which the Consumer Price Index (CPI) could be used to formulate short-run inflation targets. It is found that due to the particular cross-sectional properties of the relative-price distributions, the rate of change in the CPI may not be the best index for this purpose. As a consequence, the paper is also concerned with the choice of alternative indicators of inflation and their statistical properties. These alternative measures are ranked according to their ability to forecast the rate of change in the price level. Finally, the relationship between the dispersion and skewness of the relative-price distribution and generalized inflation is studied using time series analysis.

Keywords: Core inflation; developing economies; forecasting; monetary policy; price index; tiem-series (search for similar items in EconPapers)
JEL-codes: C22 C43 E31 E37 E52 O23 O54 (search for similar items in EconPapers)
Date: 2002-05, Revised 2003-09
New Economics Papers: this item is included in nep-afr, nep-lam, nep-mac and nep-mon
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http://www.accessecon.com/pubs/VUECON/vu02-w07.pdf First version, 2002 revised version 2003-05 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:0207

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