A structural common factor approach to core inflation estimation and forecasting

Claudio Morana ()
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Claudio Morana: University of Piemonte Orientale, Faculty of Economics, Via Perrone 18, I-28100, Novara, Italy, http://www.rettorato.unipmn.it/flex/cm/pages/ServeBLOB.php/L/EN/IDPagina/1

No 305, Working Paper Series from European Central Bank

Abstract: In the paper we propose a new methodological approach to core inflation estimation,based on a frequency domain principal components estimator, suited to estimate systems of fractionally cointegrated processes. The proposed core inflation measure is the scaled common persistent factor in inflation and excess nominal money growth and bears the interpretation of monetary inflation. The proposed measure is characterised by all the properties that an “ideal” core inflation process should show, providing also a superior forecasting performance relative to other available measures.

Keywords: Long memory; Common factors; Fractional cointegration; Markov switching; Core inflation; Euro area. (search for similar items in EconPapers)
JEL-codes: C22 E31 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-eec, nep-ets, nep-for, nep-mac and nep-mon
Date: Written 2004-02
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Persistent link: http://EconPapers.repec.org/RePEc:ecb:ecbwps:20040305

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