The Recent Performance of theTraditional Measure of Core Inflation in G7 Countries

In this paper we undertake an empirical investigation concerning the
performance of the traditional measure of core inflation in recent years. We
consider the group of G7 countries and explore both the high-frequency and
the low-frequency relations between overall inflation and core inflation. We
find that the traditional core measure, obtained by subtracting from the overall
index those components which exhibit high volatility and which are responsible
for the short-run variability of inflation, is a reliable indicator of trend inflation
for a group of countries including the USA, Canada and Japan. The innovation
accounting shows that for the three countries the transitory shock, i.e. the
total inflation shock, has limited persistence and hence there is a relatively
quick convergence of overall inflation to its trend component