Beyond Aggregates: A Dual Lens on Eurozone Trend Inflation

Dilan Aydin Yakut
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Dilan Aydin Yakut: Central Bank of Ireland

No 3/RT/25, Research Technical Papers from Central Bank of Ireland

Abstract: This study investigates the dynamics of trend inflation for both the euro area (EA) countries and the aggregate rates of the EA. To this aim, trend inflation rates are estimated using various forms of a flexible unobserved components model, allowing for outliers and stochastic volatility. Using granular sector-level data for country-level applications provides a finer comparison between the member countries. Both models exploiting the sector and country levels are considered for the euro area to understand the underlying dynamics more thoroughly. In addition, alternative estimates for the euro area are obtained by combining country-level results. The results show that the use of multivariate models improves precision and outperforms the univariate models at longer horizons. A horse race between these estimates and the other popular measures from the literature, such as PCCI, supercore, etc., shows that no single metric outperforms the others. Therefore, it remains crucial to have various measures in the toolbox of policymakers as they complement each other.

Keywords: Trend inflation; persistence; unobserved components; the euro area. (search for similar items in EconPapers)
JEL-codes: C11 C32 E52 (search for similar items in EconPapers)
Date: 2025-05
New Economics Papers: this item is included in nep-eec and nep-mon
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