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Jim Lee
''Food and Energy Prices in Core Inflation''
( 2009, Vol. 29 No.2 )
Many central bankers have made monetary policy decisions by focusing on core inflation data that exclude food and energy prices from overall inflation. In this paper, estimation results from multivariate GARCH models show that food prices not only help forecast future core inflation, but their conditional variance also affects the conditional variance of core inflation. Energy prices, on the other hand, affect core inflation primarily through the GARCH-in-mean effect. To the extent that food and energy prices affect the underlying trend and volatility of overall inflation, policymakers should not ignore these components in their assessment of future inflation risk.
Keywords: food and energy
JEL: E3 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
C5 - Econometric Modeling: General
Manuscript Received : Sep 29 2008 Manuscript Accepted : May 04 2009

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