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| Author: | Siviero, S. Veronese, G. |
| Title: | A policy-sensible benchmark core inflation measure |
| Journal: | Oxford Economic Papers
2011 : DEC, VOL. 63:4, p. 648-672 |
| Index terms: | economic policy monetary policy benchmarking European Union inflation central banks USA |
| Language: | eng |
| Abstract: | Core or underlying inflation indicators prominently come up in the economic debate as well as in internal and external central bank policy discussions. Despite the popularity the role of core inflation measures in the monetary policy-making process is controversial as most of these measures are exclusively based on statistical criteria without any theoretical ground. This article proposes an approach to building a benchmark measure of core inflation that explicitly considers core inflation as an artificial concept whose usefulness rests exclusively with its application in improving monetary policy effectiveness. Using this measure, built on the basis of the solution to a standard optimal monetary policy problem, we evaluate the performance and policy utility of other, popular core inflation indicators. Our approach is demonstrated by means of two applications to euro-area and US data. |
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