Monetary Regimes and Core Inflation

37 Pages Posted: 5 Feb 2004

See all articles by Julie K. Smith

Julie K. Smith

Lafayette College - Department of Economics & Business

Date Written: October 2003

Abstract

This paper examines the interaction of core inflation and monetary policy. Interest in core has grown because of inflation targeting. Core inflation is defined in numerous ways giving rise to many potential measures; I define core inflation as the best forecaster of inflation. A cross-country study finds that core inflation differs across monetary regimes. A theoretical model shows that in an accommodative regime lagged inflation is core inflation and in a non-accommodative regime, such as strict inflation targeting, the trimmed mean is core. Using unconditional regressions I find that the theoretical model holds empirically. Through conditional regressions, inflation expectations are found to be consistent with the accommodativeness of the central bank.

Keywords: Core inflation, Inflation targeting

JEL Classification: E52, E31, E58

Suggested Citation

Smith, Julie K., Monetary Regimes and Core Inflation (October 2003). Available at SSRN: https://ssrn.com/abstract=494222 or http://dx.doi.org/10.2139/ssrn.494222

Julie K. Smith (Contact Author)

Lafayette College - Department of Economics & Business ( email )

Easton, PA 18042
United States

HOME PAGE: http://ww2.lafayette.edu/~smithjk/