Measuring and Modeling Core Inflation for three GCC Countries: Kuwait, Oman and the UAE

Citation: Mohamad A. Abou Hamia, PhD (Volume 11, Number 2, 2011) Measuring and Modeling Core Inflation for three GCC Countries: Kuwait, Oman and the UAE. Journal of International Finance and Economics (RSS)
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Summary

This is the first study of its kind to measure and to evaluate core inflation in the GCC region. The data used cover the periods from July 2005 to October 2010 for Kuwait, from January 2001 to December 2009 for Oman, and from January 2008 to December 2010 for the UAE. This study is based on 31 intermediate three-digit aggregation levels of CPI in Kuwait, 29 in Oman, and 37 for the UAE. The price change used is the end-of-quarter. The data analysis shows that the cross-sectional distributions of price changes in the three countries are highly leptokurtic (thin tails) and skewed to the right. Four core inflation measures have been developed: the permanent exclusion of the food sectors, the weighted medians, the trimmed means and the volatility weights (Edgeworthian Index) measures. After evaluating and comparing the different obtained measures, we recommend the 20% asymmetric trimmed means for Kuwait, which excludes 12% and 8% from the lower and upper tails of price changes distribution respectively, the Edgeworthian Index for Oman, and the 5% asymmetric trimmed means for the UAE, which excludes 8% from the lower tail and 2% from the upper tail of price distribution as the best and most efficient measure of core inflations.