Identifying Domestic and Imported Core Inflation

Are the Consequences Different?

This paper estimates core inflation in Norway, identified as that component of inflation that has no long-run effect on GDP. The model distinguishes explicitly between domestic and imported core inflation. The results show that (domestic) core inflation is the main component of CPI inflation. CPI inflation, however, misrepresents core inflation in some periods. The differences are well explained by the other shocks identified in the model, in particular the oil price shocks of the 1970s when Norway imported inflation, and the negative noncore (supply) shocks of the late 1980s, which pushed inflation up temporarily relative to core inflation.
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Volume/Issue: Volume 2000 Issue 004
Publication date: January 2000
ISBN: 9781451842036
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Business and Economics , Inflation , Economics- Macroeconomics , Money and Monetary Policy , WP , core inflation rate , oil price shock , price , Domestic and imported core inflation , inflation target , oil price shocks , structural VAR , CPI inflation , core inflation shock , VAR model , overpredicts core inflation , Inflation , Oil prices , Consumer price indexes , Inflation targeting , Vector autoregression

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Summary

This paper estimates core inflation in Norway, identified as that component of inflation that has no long-run effect on GDP. The model distinguishes explicitly between domestic and imported core inflation. The results show that (domestic) core inflation is the main component of CPI inflation. CPI inflation, however, misrepresents core inflation in some periods. The differences are well explained by the other shocks identified in the model, in particular the oil price shocks of the 1970s when Norway imported inflation, and the negative noncore (supply) shocks of the late 1980s, which pushed inflation up temporarily relative to core inflation.

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