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Econometrics 2013, 1(1), 32-52; doi:10.3390/econometrics1010032

Constructing U.K. Core Inflation

School of Business and Economics, Loughborough University, Leicestershire, LE11 3TU, UK.
Received: 28 February 2013 / Revised: 12 March 2013 / Accepted: 12 March 2013 / Published: 25 April 2013
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The recent volatile behaviour of U.K. inflation has been officially attributed to a sequence of “unusual” price changes, prompting renewed interest in the construction of measures of “core inflation”, from which such unusual price changes may be down-weighted or even excluded. This paper proposes a new approach to constructing core inflation based on detailed analysis of the temporal stochastic structure of the individual prices underlying a particular index. This approach is illustrated using the section structure of the U.K. retail price index (RPI), providing a number of measures of core inflation that can be automatically calculated and updated to provide both a current assessment and forecasts of the underlying inflation rate in the U.K.
Keywords: core inflation; index numbers; signal extraction; time series modelling core inflation; index numbers; signal extraction; time series modelling
This is an open access article distributed under the Creative Commons Attribution License (CC BY) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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Mills, T.C. Constructing U.K. Core Inflation. Econometrics 2013, 1, 32-52.

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