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Alternative measures of underlying inflation in the euro area

Cristina Conflitti ()
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Cristina Conflitti: Bank of Italy

No 593, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper proposes two measures of underlying inflation for euro area as an alternative to the Harmonized Index of Consumer Prices excluding Food and Energy. The first measure, called the Core cycle measure, is constructed by using a Phillips curve model to distinguish disaggregated prices that respond to the economic cycle (procyclical), from those which do not (acyclical). The second measure, called the Common core measure, is constructed using a factor model to remove components that are subject to large or unusual price changes, which are unlikely to be related to the underlying trend of inflation because of their idiosyncratic nature. Each measure has merits and shortcomings, suggesting that they should be taken together to assess inflation developments.

Keywords: core inflation; disaggregate consumer prices; dynamic factor model; Phillips curve (search for similar items in EconPapers)
JEL-codes: C32 E31 E32 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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