Abstract

Presently，more and more countries and regions have paid attention to and built the core inflation index，and consider the index as an important concern of monetary policy. China’s National Bureau of Statistics and the People’s Bank of China also have begun to pay attention to core inflation when formulating monetary policy，but core inflation index is still not calculated and published periodically. In this context，this paper makes a systematic study of the measure methodologies of core inflation. Study on China’s core inflation is very important to accurately judging the long-run and underlying trends，and it has theoretical and practical significance on scientifically making monetary policy and effectively implementing monetary policy.

At first the dissertation collected and sorted out the study literature，summed up the current domestic and foreign core inflation of the study on the status quo，and analyzed the concept of core inflation and measure methodologies. Identified the shortcomings and made this study perspectives and ideas.

Secondly，measured China’s core inflation based on the Bayesian Gibbs Sampler State-Space model and Dynamic Factor Index model. And established the reasonable and economic meaning model to verify the rationality of the two measurement methods.

Next，compared various forms of core inflation from different perspectives. Make use of the qualitative and quantitative analysis to test various core CPI and the disparity in their practical application.

More than that，the important purpose of measuring core inflation is to predict in the future. In this book，we use the most popular model to test the ability of China’s core CPI to forecast CPI，and point out the shortcomings of the prediction model.

Finally，we make theoretical analysis for the causes and risks of monetary policy focusing on core inflation. we also recommend the economic indicators which should be paid attention to when making short-term and long-term price adjustments.

This book obtained the following conclusions：

（1）According to the various features of core inflation in the current academic，this book defines core inflation as the permanent and common components of CPI which reflect the potential long-term tendency of inflation by deducting the transitory components from sub-indices of CPI，it is a focus of formulating and adjusting monetary policy.

（2）By using a variety of methods，the book measured core CPI，and found that there are differences between those core CPI. The causes of inflation have diversity and complexity. There is no clear cut between core inflation and no-core inflation，measuring core inflation accurately is of great difficulty. There are often fuzzy factors in the actual measurement.

（3）Applied the Bayesian Gibbs Sampler State-Space model and Dynamic Factor Index model to measure China’s core inflation. The results show that the two core inflation reflect the potential long-term trend of inflation in the sample period from January 2001 to April 2011，the standard deviations of core CPI are smaller than those of CPI. The two core inflation have greater relation ship with the growth rate of money supply. And established a model to validate the rationality of the measured core CPI—core CPI from temporary shocks. Clothing and transportation consume price have the largest contribution to core inflation，but food，entertainment and education and housing consume price index have smaller contribution to core inflation.

（4）Compared various core inflation from different perspectives. The results showed that，in the sample period，there is no single method can satisfy all exceptional qualities at present. In the practical application，which core inflation can be more suitable for formulating monetary policy depends on the different characteristics of core inflation as well as the purposes and needs. Given equal attention to different characteristics，asymmetric trimmed mean method，BGS state space model method and DFI model method are better to estimate core inflation.

（5）We make theoretical analysis for the causes and risks of monetary policy focusing on core inflation. Combined with China’s actual conditions，we analyzed the relationship between the core CPI with monetary policy. When China adjusts monetary policy according to the transitory fluctuations of prices，the core CPI should be taken into consideration along with the headline inflation. There exists great lagged effects of monetary policy for core inflation，so in the formulation of medium-term and long-term monetary policy，we should focus on forward-looking core inflation.

This book’s research results play an important role in understanding China’s long-run and potential trends of inflation accurately，and the measure methods of core inflation，and it is very important to the judgment of economic situation and adoption of the macroeconomic policies.

Key Words：Core Inflation；Monetary Policy；Markov Chains Monte Carlo；Dynamic Factor；Common Factor；Prediction