Measuring Core Inflation (Now published in Economic Journal, vol. 105, No. 432 (September 1995), pp.1130-1144.)

Danny Quah and Shaun Vahey

STICERD - Econometrics Paper Series from Suntory and Toyota International Centres for Economics and Related Disciplines, 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 comovements in inflation and output. We construct a measure of core inflation by placing dynamic restrictions on a vector autoregression (VAR) system.

Keywords: core inflation; vector autoregression; dynamic restrictions (search for similar items in EconPapers)
Date: 1995-08
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Persistent link: https://EconPapers.repec.org/RePEc:cep:stiecm:282

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