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Beyond Aggregates: A Dual Lens on Eurozone Trend Inflation

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  • Aydin Yakut, Dilan

    (Central Bank of Ireland)

Abstract

This study investigates the dynamics of trend inflation for both the euro area (EA) countries and the aggregate rates of the EA. To this aim, trend inflation rates are estimated using various forms of a flexible unobserved components model, allowing for outliers and stochastic volatility. Using granular sector-level data for country-level applications provides a finer comparison between the member countries. Both models exploiting the sector and country levels are considered for the euro area to understand the underlying dynamics more thoroughly. In addition, alternative estimates for the euro area are obtained by combining country-level results. The results show that the use of multivariate models improves precision and outperforms the univariate models at longer horizons. A horse race between these estimates and the other popular measures from the literature, such as PCCI, supercore, etc., shows that no single metric outperforms the others. Therefore, it remains crucial to have various measures in the toolbox of policymakers as they complement each other.

Suggested Citation

  • Aydin Yakut, Dilan, 2025. "Beyond Aggregates: A Dual Lens on Eurozone Trend Inflation," Research Technical Papers 3/RT/25, Central Bank of Ireland.
    • Handle: RePEc:cbi:wpaper:3/rt/25
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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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