Examining the Ability of Core Inflation to Capture the Overall Trend of Total Inflation

Heather Tierney

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines whether core inflation is able to predict the overall trend of total inflation using real-time data in a parametric and nonparametric framework. Specifically, two sample periods and five in-sample forecast horizons in two measures of inflation, which are the personal consumption expenditure and the consumer price index, are used in the exclusions-from core inflation persistence model. This paper finds that core inflation is only able to capture the overall trend of total inflation for the twelve-quarter in-sample forecast horizon using the consumer price index in both the parametric and nonparametric models in the longer sample period. The nonparametric model outperforms the parametric model for both data samples and for all five in-sample forecast horizons.

Keywords: Inflation Persistence; Real-Time Data; Monetary Policy; Nonparametrics; In-Sample Forecasting (search for similar items in EconPapers)
JEL-codes: C14 C53 E52 (search for similar items in EconPapers)
Date: 2009-08, Revised 2010-02
New Economics Papers: this item is included in nep-for and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:22409

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