Wednesday Research Seminar Series - Measuring Inflation: A Novel Approach to Core Inflation Measurement

We are pleased to invite you to our Wednesday Research Seminar. It will be held online on 4th December from 4pm via MS Teams. Wednesday Research Seminar Series was launched in 2008 and has featured more than 360 presentations to date. The seminars provide a forum for researchers to share their work. Presenters include faculty from Middlesex University Dubai and other universities in the United Arab Emirates, as well as researchers from other global institutions. Sartaj will deliver seminar on:

“Measuring Inflation: A Novel Approach to Core Inflation Measurement”
Sartaj Rasool Rather

Abstract

Headline or measured inflation reflects not only the impact of demand pressure but also the supply shocks which are transitory in nature and beyond the control of monetary authorities. These temporary fluctuations in inflation raise question on the use of headline inflation as a policy indicator as it may often provoke inefficient policy reactions. In this context, it is very crucial for the monetary authorities to have an accurate measure of inflation to gauge the price pressure in an economy. Hence, monetary authorities rely on a measure of inflation called core inflation, which is believed to be noise free and more precise. Three alternative methods have been widely used to construct core inflation: (i) exclusion method; (ii) limited influence method; and (iii) model-based method. All these traditional methods face various limitations in one way or another. For example, the exclusion method involves arbitrary elimination of certain prices which are, in researchers’ perception, considered to be more volatile. Under the limited influence method, a certain percentage of prices on both extremes of the distribution of price changes are either symmetrically or asymmetrically eliminated to arrive at a measure of core inflation. However, this method raises the question of the optimal percentage to be considered for trimming. The underlying/core inflation obtained from macro econometric models tends to alter the estimates of past core inflation when new observations are added to estimate the model, and thereby making it is less useful for communication purpose. In this study, we propose a measure of core inflation which is defined as the weighted average of the distribution of commodity price changes which has minimum-skewness. The measure of core inflation derived from such method is found to be a powerful leading indicator of headline inflation while other conventional measures do not seem to reflect such fundamental property of core inflation. The main property of this procedure is that the trimming percentage varies over time depending on the sign and magnitude of the skewness of relative price shocks.

Presenter Bios

Dr. Sartaj Rasool Rather is an Associate Professor of Economics and is currently serving as Head of the Department of Management Studies at Birla Institute of Technology and Science (BITS) Pilani, Dubai Campus, UAE. With ten years of experience in teaching and research, including seven years in the UAE, Dr. Rather specializes in applied macroeconomics and policy. His research addresses key issues in areas such as inflation modelling and control, monetary policy operations, price adjustments, and relative price variability. He has published about 15 research papers in reputed ABDC-indexed journals, including Journal of Asian Economics, Australian Economic Papers, Economic Notes, Bulletin of Economic Research, Applied Economics Letters, The Journal of Economic Asymmetries, Economic & Political Weekly and similar other Journals. At BITS Pilani, Dr. Rather teaches a variety of graduate and undergraduate courses which include: Principles of Economics, Microeconomics, Macroeconomics, Applied Econometrics, Business Statistics, Time Series Econometrics, Money and Banking, International trade and finance, Managerial Economics and Economic Environment of Business. He widely uses empirical data sets to demonstrate the real-world applications of various theoretical concepts, live cases, relevant case studies, and actively encourage the students in the project-based learning. He is the recipient of the prestigious "Prof. M. J. Manohar Rao Award" in 2017 by The Indian Econometric Society, recognizing his contributions to quantitative economics at a very young age. During his tenure at the Madras School of Economics, Chennai, India, he demonstrated outstanding mentorship by leading a team of students to victory in the "RBI Policy Challenge 2016", a national competition organized by Reserved Bank of India.