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CORE INFLATION INDICATORS FOR SAUDI ARABIA

William Barnett () and Ryadh Alkhareif ()

No 201410, WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS from University of Kansas, Department of Economics

Abstract: This paper constructs and analyzes core inflation indicators for Saudi Arabia for the period of March 2012 to May 2014 using two alternative approaches: the Exclusion Method (ex food and housing/rent) and the Statistical Method. The findings of the analysis suggest that the ex food and housing/rent inflation is more volatile than the overall CPI inflation over the sample period. In contrast, the statistical core inflation is relatively more stable and less volatile. Moreover, the ex food and housing/rent inflation is only weakly correlated with headline inflation, whereas the statistical core inflation exhibits a stronger correlation. This combination of lower volatility and higher correlation with headline inflation makes the statistical method a much better choice for policymakers. From a monetary policy standpoint, using a bundle of core inflation measures, including both properly constructed Exclusion and Statistical methods, is more desirable, especially when variation across measures is widespread, as is the case in Saudi Arabia.

Keywords: consumer price index; core inflation; generalized dynamic factor model; monetary policy. (search for similar items in EconPapers)
JEL-codes: C51 E31 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ara, nep-cba, nep-mac and nep-mon
Date: 2015-03, Revised 2015-03
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