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Evaluating Alternative Core Inflation Measures for Argentina

Laura D´Amato (), PLidia Sanz and Juan Sotes-Paladino
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Laura D´Amato: Central Bank of Argentina
PLidia Sanz: Central Bank of Argentina

Authors registered in the RePEc Author Service: Laura Inés D'Amato ()

No 200501, BCRA Working Paper Series from Central Bank of Argentina, Economic Research Department

Abstract: Monetary policymaking requires an adequate appraisal of price dynamics and reliable forecasts for short and medium term inflation. Since the relevant inflation for monetary policy purpose may not be adequately measured by conventional consumer price indexes, there is a need for core inflation measures that adequately reflect joint and persistent movements in prices. With this aim, eight different measures of core inflation are constructed, based on i) re-weighting of CPI components in a new aggregate index according to the relative significance of each item as a signal of inflation, ii) excluding the most volatile CPI components, or directly those related to food and energy, considered to be less affected by monetary policy, iii) calculating a robust estimator of the first order moment for the cross sectional distribution of CPI inflation that excludes extreme values. These indicators are evaluated on the basis of their ability to predict consumer price inflation. The results indicate that the measure constructed according to criterion i) of signal extraction provides the core inflation indicator with the best relative performance.

Keywords: Argentina; consumer price index; core inflation measures; inflation (search for similar items in EconPapers)
JEL-codes: E31 E37 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2005-05
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