Measuring core inflation in the euro area
AbstractWe propose a measure of core inflation which is derived from a Markov switching ARFIMA model. The Markov switching ARFIMA model generalises the standard ARFIMA model allowing mean reversion to take place with respect to a changing unconditional mean. By imposing a coswitching restriction for nominal money growth and HICP inflation we are able to identify three regimes and establish a linkage between the long-run dynamics of inflation and money growth. The last regime has been found to be coherent with the objective of price stability and can be tentatively named EMU regime. The core inflation model has been contrasted with other models suggested in the literature and found to be superior in terms of forecasting power. JEL Classification: C22, E31, E52
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Date of creation: Nov 2000
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Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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