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Why Should Central Banks Avoid the Use of the Underlying Inflation Indicator?
Afonso Gonçalves da Silva
Pedro Duarte Neves
C43 - Index Numbers and Aggregation
E31 - Price Level; Inflation; Deflation
E52 - Monetary Policy (Targets, Instruments, and Effects)
This paper assesses the usefulness of the commonly used underlying inflation indicator, in light of the criteria proposed in Marques et al. (2000). Empirical evidence for a group of six countries strongly suggets that the use of underlying inflation as an indicator of trend inflation should be avoided.