Core Inflation: Measurement and Statistical Issues in Choosing Among Alternative Measures

This paper provides an overview of statistical measurement issues relating to alternative measures of core inflation and the criteria for choosing among them. The approaches to measurement considered include exclusion-based methods, limited influence estimators, reweighting, and economic modeling. Criteria for judging which approach to use include credibility, control, deviations from a smoothed reference series, volatility, predictive ability, causality and co-integration tests, and correlation with money supply. The extensive number of measures, criteria by which their appropriateness is assessed, and lack of consistency in the results of country studies argue for a data-driven approach. IMF Staff Papers (2007) 54, 163–190. doi:10.1057/palgrave.imfsp.9450006