Underlying inflation and asymetric risks

Hervé Le Bihan, Danilo Leiva-Leon () and Matías Pacce

No 2319, Working Papers from Banco de España

Abstract: We propose a new measure of underlying inflation that provides real-time information on asymmetric risks in the outlook for inflation. The asymmetries are generated by nonlinearities induced by economic activity. The new indicator is based on a multivariate regime-switching framework estimated using disaggregated sub-components of euro area HICP and has several additional advantages. First, it is able to swiftly infer abrupt changes in underlying inflation. Second, it helps track turning points in underlying inflation on a timely basis. Third, the proposed indicator also performs satisfactorily vis-à-vis several criteria relevant to inflation monitoring.

Keywords: underlying inflation; asymmetric risks; regime-switching; Bayesian methods (search for similar items in EconPapers)
JEL-codes: C11 C22 C24 E17 E31 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2023-07
New Economics Papers: this item is included in nep-ban, nep-eec and nep-mon
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https://www.bde.es/f/webbe/SES/Secciones/Publicaci ... 23/Files/dt2319e.pdf First version, July 2023 (application/pdf)

Related works:
Working Paper: Underlying inflation and asymmetric risks (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2319

DOI: 10.53479/30849

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