What drives core inflation? A dynamic factor model analysis of tradable and nontradable prices
I develop a new estimate of core inflation for New Zealand and Australia based on a dynamic factor model. By using an over-identification restriction, the factors of the model are classified as tradable and nontradable factors. This innovation allows us to examine the relative contributions of tradable and nontradable prices towards core inflation. The results show that core inflation in both countries is primarily driven by the nontradable factor. The nontradable factor also explains significantly more of the variance in headline inflation relative to the tradable factor. Finally, both the tradable and nontradable factors show similar profiles across both countries suggesting common drivers.
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- 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.
- Riccardo Cristadoro & Mario Forni & Lucrezia Reichlin & Giovanni Veronese, 2001.
"A core inflation index for the euro area,"
Temi di discussione (Economic working papers)
435, Bank of Italy, Economic Research and International Relations Area.
- Emanuel Moench & Serena Ng & Simon M. Potter, 2009.
"Dynamic hierarchical factor models,"
412, Federal Reserve Bank of New York.
- Viv Hall & Kunhong Kim & Robert Buckle, 1998. "Pacific rim business cycle analysis: Synchronisation and volatility," New Zealand Economic Papers, Taylor & Francis Journals, vol. 32(2), pages 129-159.
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