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A persistence-weighted measure of core inflation in the Euro area

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  • Bilke, Laurent
  • Stracca, Livio

Abstract

We propose a new core inflation measure for the Euro area which places the emphasis on the more lasting, i.e. persistent, price developments at a disaggregated level. The importance of each component of the HICP is reweighted according to its relative persistence, as measured by the sum of the autoregressive coefficients or by an indicator of mean reversion. Unlike headline inflation, our baseline core inflation measure is highly correlated with ECB monetary policy decisions, which could mean that it contains ex ante (pre monetary policy) information on inflationary pressure. JEL Classification: E31

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 24 (2007)
Issue (Month): 6 (November)
Pages: 1032-1047

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Handle: RePEc:eee:ecmode:v:24:y:2007:i:6:p:1032-1047

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Web page: http://www.elsevier.com/locate/inca/30411

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  1. Andrews, Donald W K & Chen, Hong-Yuan, 1994. "Approximately Median-Unbiased Estimation of Autoregressive Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(2), pages 187-204, April.
  2. Bilke, Laurent, 2005. "Break in the mean and persistence of inflation: a sectoral analysis of French CPI," Working Paper Series 0463, European Central Bank.
  3. Filippo Altissimo & Laurent Bilke & Andrew Levin & Thomas Mathä & Benoit Mojon, 2006. "Sectoral and Aggregate Inflation Dynamics in the Euro Area," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 585-593, 04-05.
  4. Robalo Marques, Carlos & Duarte Neves, Pedro & Morais Sarmento, Luis, 2003. "Evaluating core inflation indicators," Economic Modelling, Elsevier, vol. 20(4), pages 765-775, July.
  5. Wynne, Mark A., 1999. "Core inflation: a review of some conceptual issues," Working Paper Series 0005, European Central Bank.
  6. Dias, Daniel & Robalo Marques, Carlos, 2005. "Using mean reversion as a measure of persistence," Working Paper Series 0450, European Central Bank.
  7. Perron, P., 1989. "Testing For A Unit Root In A Time Series With A Changing Mean," Papers 347, Princeton, Department of Economics - Econometric Research Program.
  8. Alan Mankikar & Jo Paisley, 2004. "Core inflation: a critical guide," Bank of England working papers 242, Bank of England.
  9. Diron, Marie & Mojon, Benoît, 2005. "Forecasting the central bank’s inflation objective is a good rule of thumb," Working Paper Series 0564, European Central Bank.
  10. Corvoisier, Sandrine & Mojon, Benoît, 2005. "Breaks in the mean of inflation: how they happen and what to do with them," Working Paper Series 0451, European Central Bank.
  11. Cristadoro, Riccardo & Forni, Mario & Reichlin, Lucrezia & Veronese, Giovanni, 2005. "A Core Inflation Indicator for the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(3), pages 539-60, June.
  12. Altissimo, Filippo & Corradi, Valentina, 2003. "Strong rules for detecting the number of breaks in a time series," Journal of Econometrics, Elsevier, vol. 117(2), pages 207-244, December.
  13. Scott Roger, 1998. "Core inflation: concepts, uses and measurement," Reserve Bank of New Zealand Discussion Paper Series G98/9, Reserve Bank of New Zealand.
  14. Camba-Méndez, Gonzalo & Kapetanios, George, 2004. "Forecasting euro area inflation using dynamic factor measures of underlying inflation," Working Paper Series 0402, European Central Bank.
  15. Bilke, L., 2005. "Break in the Mean and Persistence of Inflation: a Sectoral Analysis of French CPI," Working papers 122, Banque de France.
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Cited by:
  1. Bermingham, Colin, 2010. "A critical assessment of existing estimates of US core inflation," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 993-1007, December.
  2. Alan K. Detmeister, 2011. "The usefulness of core PCE inflation measures," Finance and Economics Discussion Series 2011-56, Board of Governors of the Federal Reserve System (U.S.).
  3. James P Walsh, 2011. "Reconsidering the Role of Food Prices in Inflation," IMF Working Papers 11/71, International Monetary Fund.

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