A combined measure of UK core inflation estimates

Hyeon Seung Huh, Hyun Hoon Lee

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

This article estimates UK core inflation in a structural Vector Autoregression (VAR) framework. While building on the work of Quah and Vahey (1995), we extend their two-variable VAR model to allow for different dynamics depending on the nature of the shocks that potentially influence the process of core inflation. We also construct a combined measure of core inflation estimates on the basis of their reliabilities. Empirical evidence shows that the new measures demonstrate marked improvement in their eligibility to serve as core inflation estimators. Furthermore, the combined measure is shown to perform best. It appears that the conventional core measures such as the retail prices excluding mortgage interest payments (RPIX) and the Harmonized Index of Consumer Prices (HICP) inflation series are not successful in capturing the underlying trend of inflation, casting some doubt on their current use in the making of monetary policy decisions.

Original languageEnglish
Pages (from-to)2331-2341
Number of pages11
JournalApplied Economics
Volume43
Issue number18
DOIs
Publication statusPublished - 2011 Jul 1

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Core inflation
Inflation
Retail prices
Vector autoregression model
Consumer prices
Structural vector autoregression
Monetary policy
Empirical evidence
Payment
Estimator
Mortgages

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

Huh, Hyeon Seung ; Lee, Hyun Hoon. / A combined measure of UK core inflation estimates. In: Applied Economics. 2011 ; Vol. 43, No. 18. pp. 2331-2341.
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A combined measure of UK core inflation estimates. / Huh, Hyeon Seung; Lee, Hyun Hoon.

In: Applied Economics, Vol. 43, No. 18, 01.07.2011, p. 2331-2341.

Research output: Contribution to journalArticle

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