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Measuring Core Inflation
Danny Quah and Shaun P. Vahey
The Economic Journal
Vol. 105, No. 432 (Sep., 1995), pp. 1130-1144
Stable URL: http://www.jstor.org/stable/2235408
Page Count: 15
You can always find the topics here!Topics: Economic inflation, Core inflation, Macroeconomics, Inflation shocks, Real output, Vector autoregression, Banks, Economic impact analysis, Economic theory, Keynesianism
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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.
The Economic Journal © 1995 Royal Economic Society