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A persistence-weighted measure of core inflation in the euro area

  • Bilke, Laurent
  • Stracca, Livio

We propose a new core inflation measure for the Euro area which places the emphasis on the more lasting, i.e. persistent, price developments at a disaggregated level. The importance of each component of the HICP is reweighted according to its relative persistence, as measured by the sum of the autoregressive coefficients or by an indicator of mean reversion. Unlike headline inflation, our baseline core inflation measure is highly correlated with ECB monetary policy decisions, which could mean that it contains ex ante (pre monetary policy) information on inflationary pressure. JEL Classification: E31

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Paper provided by European Central Bank in its series Working Paper Series with number 0905.

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Date of creation: Jun 2008
Date of revision:
Handle: RePEc:ecb:ecbwps:20080905
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  1. Diron, Marie & Mojon, Benoît, 2005. "Forecasting the central bank’s inflation objective is a good rule of thumb," Working Paper Series 0564, European Central Bank.
  2. Camba-Méndez, Gonzalo & Kapetanios, George, 2004. "Forecasting euro area inflation using dynamic factor measures of underlying inflation," Working Paper Series 0402, European Central Bank.
  3. Daniel Dias & Carlos Robalo Marques, 2005. "Using Mean Reversion as a Measure of Persistence," Working Papers w200503, Banco de Portugal, Economics and Research Department.
  4. Altissimo, Filippo & Corradi, Valentina, 2003. "Strong rules for detecting the number of breaks in a time series," Journal of Econometrics, Elsevier, vol. 117(2), pages 207-244, December.
  5. Mark A. Wynne, 2008. "Core inflation: a review of some conceptual issues," Review, Federal Reserve Bank of St. Louis, issue May, pages 205-228.
  6. Filippo Altissimo & Laurent Bilke & Andrew Levin & Thomas Mathä & Benoit Mojon, 2006. "Sectoral and Aggregate Inflation Dynamics in the Euro Area," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 585-593, 04-05.
  7. Scott Roger, 1998. "Core inflation: concepts, uses and measurement," Reserve Bank of New Zealand Discussion Paper Series G98/9, Reserve Bank of New Zealand.
  8. Perron, Pierre, 1990. "Testing for a Unit Root in a Time Series with a Changing Mean," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(2), pages 153-62, April.
  9. Pedro Duarte Neves & Luís Morais Sarmento & Carlos Robalo Marques, 1999. "Evaluating core inflation indicators," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  10. Alan Mankikar & Jo Paisley, 2004. "Core inflation: a critical guide," Bank of England working papers 242, Bank of England.
  11. Riccardo Cristadoro & Mario Forni & Lucrezia Reichlin & Giovanni Veronese, 2005. "A core inflation indicator for the Euro area," ULB Institutional Repository 2013/10131, ULB -- Universite Libre de Bruxelles.
  12. Andrews, Donald W K & Chen, Hong-Yuan, 1994. "Approximately Median-Unbiased Estimation of Autoregressive Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(2), pages 187-204, April.
  13. Corvoisier, Sandrine & Mojon, Benoît, 2005. "Breaks in the mean of inflation: how they happen and what to do with them," Working Paper Series 0451, European Central Bank.
  14. Bilke, Laurent, 2005. "Break in the mean and persistence of inflation: a sectoral analysis of French CPI," Working Paper Series 0463, European Central Bank.
  15. Bilke, L., 2005. "Break in the Mean and Persistence of Inflation: a Sectoral Analysis of French CPI," Working papers 122, Banque de France.
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