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Measuring Trend Inflation Using Financial Condition: The Case of Japan

Author

Listed:
  • Masahiko Shibamoto

    (Research Institute for Economics and Business Administration and Center for Computational Social Science, Kobe University, JAPAN)

Abstract

This paper proposes a novel but simple method of measuring trend inflation by utilizing financial time series data. The idea is that inflation and financial conditions share a common stochastic trend. The study shows that this common trend has a statistically significant power in predicting future inflation in Japan. The proposed method outperforms other measures of core inflation in many cases because it eliminates transitory inflation fluctuations and captures the slow-moving changes in inflation.

Suggested Citation

  • Masahiko Shibamoto, 2024. "Measuring Trend Inflation Using Financial Condition: The Case of Japan," Discussion Paper Series DP2024-11, Research Institute for Economics & Business Administration, Kobe University, revised Mar 2026.
    • Handle: RePEc:kob:dpaper:dp2024-11
    as

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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2024-11.pdf
    File Function: Revised version, 2026
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    References listed on IDEAS

    as
    1. Whitney Newey & Kenneth West, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    2. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
    3. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • 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
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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