A core inflation indicator for the Euro area
AbstractThis paper proposes a new core inflation indicator for the euro area, obtained by "cleaning" monthly price changes from short-run volatility, idiosyncratic, and measurement errors. We use a factor model to "project" monthly inflation on a large panel of time series. Exploiting multivariate information we obtain a satisfactory degree of smoothing without using backward looking moving averages, which induce a time delay in the signal. The indicator forecasts inflation and is a useful tool for policy makers. It outperforms other commonly used predictors at 6 months and longer horizons. It tracks past policy interventions of the ECB.
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Bibliographic InfoPaper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/10131.
Date of creation: Jun 2005
Date of revision:
Publication status: Published in: Journal of Money, Credit & Banking (2005) v.37 n° 3,p.539-560
Other versions of this item:
- 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, Blackwell Publishing, vol. 37(3), pages 539-60, June.
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