Core Inflation and Trend Inflation

James H. Stock and Mark Watson
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James H. Stock: Harvard University and NBER

The Review of Economics and Statistics, 2016, vol. 98, issue 4, 770-784

Abstract: This paper examines empirically whether the measurement of trend inflation can be improved by using disaggregated data on sectoral inflation to construct indexes akin to core inflation but with a time-varying distributed lags of weights, where the sectoral weight depends on the timevarying volatility and persistence of the sectoral inflation series and on the comovement among sectors. The modeling framework is a dynamic factor model with time-varying coefficients and stochastic volatility as in Del Negro and Otrok (2008), and is estimated using U.S. data on seventeen components of the personal consumption expenditure inflation index.

Keywords: inflation forecasts; non-Gaussian state space; time-varying parameters; dissagregated prices (search for similar items in EconPapers)
JEL-codes: C33 E31 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (91)

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