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Trend, Seasonal, and Sectoral Inflation in the Euro Area

Author

Listed:
  • James H. Stock

    (Harvard University)

  • Mark W. Watson

    (Princeton University)

Abstract

An unobserved components model with stochastic volatility is used to decompose aggregate Euro area HICP inflation into a trend, seasonal and irregular components. Estimates of the components based only on aggregate data are imprecise: the width of 68% error bands for the seasonally adjusted value of aggregate inflation is 1.0 percentage points in the final quarter of the sample. Estimates are more precise using a multivariate model for a 13-sector decomposition of aggregate inflation, which yields a corresponding error band that is roughly 40% narrower. Trend inflation exhibited substantial variability during the 2001-2018 period and this variability closely mirrored variation in real activity

Suggested Citation

  • James H. Stock & Mark W. Watson, 2019. "Trend, Seasonal, and Sectoral Inflation in the Euro Area," Working Papers 2019-30, Princeton University. Economics Department..
    • Handle: RePEc:pri:econom:2019-30
    as

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    File URL: http://www.princeton.edu/~mwatson/papers/EA_Sectoral_Inflation_Stock_Watson_20190127.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Inflation; Component Model; Stochastic Volatility;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C39 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Other

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