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 language | English |
|---|---|
| Pages (from-to) | 2331-2341 |
| Number of pages | 11 |
| Journal | Applied Economics |
| Volume | 43 |
| Issue number | 18 |
| DOIs | |
| Publication status | Published - 2011 Jul 1 |
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All Science Journal Classification (ASJC) codes
- Economics and Econometrics
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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 journal › Article
TY - JOUR
T1 - A combined measure of UK core inflation estimates
AU - Huh, Hyeon Seung
AU - Lee, Hyun Hoon
PY - 2011/7/1
Y1 - 2011/7/1
N2 - 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.
AB - 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.
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UR - http://www.scopus.com/inward/citedby.url?scp=79960821906&partnerID=8YFLogxK
U2 - 10.1080/00036840903194196
DO - 10.1080/00036840903194196
M3 - Article
AN - SCOPUS:79960821906
VL - 43
SP - 2331
EP - 2341
JO - Applied Economics
JF - Applied Economics
SN - 0003-6846
IS - 18
ER -