A structural common factor approach to core inflation estimation and forecasting

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A structural common factor approach to core inflation estimation and forecasting

Author Info

Claudio Morana () (University of Piemonte Orientale, Faculty of Economics, Via Perrone 18, I-28100, Novara, Italy)

Abstract

In the paper we propose a new methodological approach to core inflation estimation,based on a frequency domain principal components estimator, suited to estimate systems of fractionally cointegrated processes. The proposed core inflation measure is the scaled common persistent factor in inflation and excess nominal money growth and bears the interpretation of monetary inflation. The proposed measure is characterised by all the properties that an “ideal” core inflation process should show, providing also a superior forecasting performance relative to other available measures.

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Paper provided by European Central Bank in its series Working Paper Series with number 305.

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Length: 71 pages
Date of creation: Feb 2004
Date of revision:
Handle: RePEc:ecb:ecbwps:20040305

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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
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

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-10-04 (All new papers)
NEP-ECM-2005-10-04 (Econometrics)
NEP-EEC-2005-10-04 (European Economics)
NEP-ETS-2005-10-04 (Econometric Time Series)
NEP-FOR-2005-10-04 (Forecasting)
NEP-MAC-2005-10-04 (Macroeconomics)
NEP-MON-2005-10-04 (Monetary Economics)

References listed on IDEAS
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Bagliano, Fabio C & Golinelli, Roberto & Morana, Claudio, 2002. "Core Inflation in the Euro Area," Applied Economics Letters, Taylor and Francis Journals, vol. 9(6), pages 353-57, May. [Downloadable!] (restricted)
Bai, Jushan, 1997. "Estimating Multiple Breaks One at a Time," Econometric Theory, Cambridge University Press, vol. 13(03), pages 315-352, June. [Downloadable!]
Other versions:
- Jushan Bai, 1995. "Estimating Multiple Breaks One at a Time," Working papers 95-18, Massachusetts Institute of Technology (MIT), Department of Economics.
Andrew Ang & Geert Bekaert, 1998. "Regime Switches in Interest Rates," NBER Working Papers 6508, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Ang, Andrew & Bekaert, Geert, 2002. "Regime Switches in Interest Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 163-82, April.
Baillie, Richard T & Chung, Ching-Fan & Tieslau, Margie A, 1996. "Analysing Inflation by the Fractionally Integrated ARFIMA-GARCH Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(1), pages 23-40, Jan.-Feb.. [Downloadable!] (restricted)
Fabio C. Bagliano & Claudio Morana, 1999. "Measuring Core Inflation in Italy," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 58(3-4), pages 301-328, December.
Elena Angelini & Jerome Henry & Ricardo Mestre, 2001. "A multi-country trend indicator for euro area inflation: computation and properties," Working Paper Series 060, European Central Bank. [Downloadable!]
Fabio C. Bagliano & Claudio Morana, 2003. "A common trends model of UK core inflation," Empirical Economics, Springer, vol. 28(1), pages 157-172, January. [Downloadable!] (restricted)
Elena Angelini & Jerome Henry & Ricardo Mestre, 2001. "Diffusion index-based inflation forecasts for the euro area," Working Paper Series 061, European Central Bank. [Downloadable!]
repec:cup:etheor:v:13:y:1997:i:3:p:315-52 is not listed on IDEAS

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