Core inflation : Literature

03. Summary Nowadays, the main aims of central banks are to achieve price stabilization and to continue this stabilization. Different types of policies are used for achieving these goals. In this respect, inflation targeting is the most widely used policy. Inflation targeting entails ascertaining a numerical inflation target or a target zone, and to announcing this target to the public. If deviations are seen, central banks interfere using monetary policy instruments. For effective inflation targeting, a reliable inflation measurement is needed. The traditional price indices like consumer price index and wholesale price index that are used for inflation measurements, are not reliable because of faults like measurement errors or influence of the temporary supply shocks. A more reliable measurement that is cleared of inflationary errors and the influence of temporary shocks is being used frequently and it's called "core inflation". Core inflation is measured by two general approaches; as the permanent component inflation and as generalized component of inflation. A common feature of these approaches is that they both measurements are done using various of methods and supply shocks are being overlook while reflecting the demand side and the expectation aspect of inflation. Because the trend of falling inflation in Turkey and central bank's signals of using inflation targeting policy, a more reliable core inflation series is needed for use as an indicator. In this study, the aim is to define the efficiency of the core inflation in reflecting the effect of monetary policies influence on inflation and to summarize the core inflation measurement methods in the literature.