Inflation Targeting and Core Inflation

This paper examines the interaction of core inflation and inflation targeting as a monetary policy regime. Interest in core inflation has grown because of inflation targeting. Core inflation is defined in numerous ways giving rise to many potential measures; this paper defines core inflation as the best forecaster of inflation. A cross-country study finds before the start of inflation targeting, but not after, core inflation differs between non-inflation targeters and inflation targeters. Through conditional regressions, inflation expectations as measured by core inflation have not changed with the advent of inflation targeting nor do they differ from non-targeters