Relative Prices, Inflation and Core Inflation

Scott Roger

No 2000/058, IMF Working Papers from International Monetary Fund

Abstract: Empirical evidence on the distribution of relative price changes almost invariably reveals high kurtosis and a tendency toward right-skewness. Simple mixed distribution models including volatile and infrequently adjusted prices can account for these and other common features, such as correlation between the mean and variance of relative prices. In such circumstances, robust measures of central tendency are likely to outperform the mean or standard measures of “core” inflation as indicators of generalized inflation. The analysis also supports the use of geometric averaging in CPI construction and the targeting of the geometric mean inflation rate rather than the Laspeyres mean.

Keywords: WP; price; price change; arithmetic mean; mean; Inflation; relative prices; central tendency; price movement; population mean; price relative; measurement difficulties; Consumer prices; Consumer price indexes; Price indexes (search for similar items in EconPapers)
Pages: 43
Date: 2000-03-01
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Citations: View citations in EconPapers (21)

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