Measuring Core Inflation

Danny Quah, Danny Quah and Shaun P. Vahey

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: In this paper we argue that measured (RPI) inflation is conceptually mismatched with core inflation: the difference is more than just "measurement error". We propose a technique for measuring core inflation, based on an explicit long-run economic hypothesis. Core inflation is defined as that component of measured inflation that has no (medium-to) long-run impact on real output - a notion that is consistent with the vertical long-run Phillips curve interpretation of the co-movement in inflation and output. We construct a measure of core inflation by placing dynamic restrictions on a vector autoregression (VAR) system.

Date: 1995-07
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Journal Article: Measuring Core Inflation? (1995)
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Persistent link: http://EconPapers.repec.org/RePEc:cep:cepdps:dp0254

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