What drives core inflation? A dynamic factor model analysis of tradable and nontradable prices

Michael Kirker

No DP2010/13, Reserve Bank of New Zealand Discussion Paper Series from Reserve Bank of New Zealand

Abstract: 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.

JEL-codes: C11 C38 E31 E52 (search for similar items in EconPapers)
Pages: 35 p.
Date: 2010-12
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:nzb:nzbdps:2010/13

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