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A Factorial Decomposition Of Inflation In Peru, An Alternative Measure Of Core Inflation

  • Alberto Humala


  • Gabriel Rodríguez


    (Departamento de Economía - Pontificia Universidad Católica del Perú)

A dynamic factorial decomposition model of inflation is estimated using Peruvian monthly data for 1995:01-2008:07. This model allows identification of changes in three relevant ináation components: idiosyncratic relative prices, aggregate relative prices, and absolute prices. Furthermore, following Reis and Watson (2007), the model allows measuring pure inflation as the common factor in the inflation rate that has a proportionate effect to all prices and that is not correlated with relative price changes at any period of time. This pure inflation estimate relates closely to standard measures of core inflation. Results are robust to different lag structures and various stochastic assumptions on the estimated factors.

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Paper provided by Departamento de Economía - Pontificia Universidad Católica del Perú in its series Documentos de Trabajo / Working Papers with number 2011-315.

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Length: pages
Date of creation: 2011
Date of revision:
Publication status: published
Handle: RePEc:pcp:pucwps:wp00315
Contact details of provider: Postal: Av. Universitaria 1801, San Miguel, Lima, Perú
Phone: (511) 626-2000 ext. 4950, 4951
Fax: (511) 626-2874
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  1. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 1999. "The Generalized Dynamic Factor Model: Identification and Estimation," CEPR Discussion Papers 2338, C.E.P.R. Discussion Papers.
  2. Cristadoro, Riccardo & Forni, Mario & Reichlin, Lucrezia & Veronese, Giovanni, 2001. "A Core Inflation Index for the Euro Area," CEPR Discussion Papers 3097, C.E.P.R. Discussion Papers.
  3. Boivin, Jean & Giannoni, Marc & Mihov, Ilian, 2007. "Sticky Prices and Monetary Policy: Evidence from Disaggregated US Data," CEPR Discussion Papers 6101, C.E.P.R. Discussion Papers.
  4. Marlene Amstad & Simon M. Potter, 2009. "Real time underlying inflation gauges for monetary policymakers," Staff Reports 420, Federal Reserve Bank of New York.
  5. Altissimo, Filippo & Mojon, Benoit & Zaffaroni, Paolo, 2009. "Can aggregation explain the persistence of inflation?," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 231-241, March.
  6. Michal Brzoza-Brzezina & Jacek Kotlowski, 2009. "Estimating pure inflation in the Polish economy," Working Papers 37, Department of Applied Econometrics, Warsaw School of Economics.
  7. Bai, Jushan, 2004. "Estimating cross-section common stochastic trends in nonstationary panel data," Journal of Econometrics, Elsevier, vol. 122(1), pages 137-183, September.
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