ABSTRACT
In defining an inflation target, policy-makers have frequently chosen to exclude certain measurable components from the consumer-price basket. The types of goods excluded have differed significantly across countries targeting inflation (Table 1). Among industrialised economies that directly targeted inflation in 1995, six made a combined total of nine separate exclusions from their indices. And more recently, the increasing focus of policy on inflation targets in a number of developing and transitional economies has renewed a global interest in the issues of target specification, including exclusions, bandwidth, and the time horizon over which the target should be met. This paper suggests a framework by which the various potential costs and benefits of exclusions may be more systematically examined, and uses it to apply a battery of econometric tests to Slovenian administered and free prices.
