Core inflation: Concept, literature and aplication

03. Summary Nowadays, many central banks have applied more efficient policies to control the inflation. Inflation targeting regimes have been in the origin of these policies. The main idea of inflation targetting is that monetary policy is directed acording to a numerical inflation target. If the future path of inflation is over (below) the target, central bank should apply a tight(expansionary) monetary policiy. So, inflation targetting needs credible inflation measure for evaluation and aplication of monetary policy. However, headline inflation has some problems to do this. One of them is known noise related to supply shocks whose effect on inflation is temporary. Over last decade, it is used a measure of inflation,"core inflation", which is expressed as trend rate or more durable part of headline inflation to remove noise from inflation. In the literature, there are many alternatives to the measure core inflation. But all of them aim to remove supply shocks from headline inflation and to give more durable part of it. This paper aims to explore different interpretions of core inflation, to calculate alternative measures of core inflation for Turkish economy and to determine the best measure among them. In this study, it has been computed thirteen core inflation measures according to statistical approach. It has been used statistical and econometric methods to determine the best one among them. Acording the findings, excluding approach is given the more succesful results. Among the excluding approach, excluding food and oil price measures which is called traditional approach, has showed best performance. VIII