EconPapers    
Economics at your fingertips  
 

A core inflation index for the euro area

Riccardo Cristadoro (), Mario Forni (), Lucrezia Reichlin () and Giovanni Veronese

No 435, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper proposes an index of core inflation for the euro area which exploits information from a large panel of time series on disaggregated prices, industrial production, labor market indicators, financial and monetary variables. The index is the result of a smoothing operation at both the cross-sectional and time series level. By extracting the common component of national inflation and disregarding the idiosyncratic one, we clean inflation from measurement error, discrepancies in data recording and dynamics originated by national or sectoral idiosyncratic shocks (cross-sectional smoothing). By extracting the component with periodicity longer than one year we clean from high frequency variation and seasonal components which are not relevant for monetary policy (time series smoothing). The indicator is shown to have a number of desirable characteristics and to perform very well as a forecaster of the euro area harmonized consumer price index at one and two years horizon, which is the relevant horizon for the ECB monetary policy.

Keywords: core inflation; dynamic factor model; inflation forecast and monetary policy (search for similar items in EconPapers)
JEL-codes: C51 E31 E32 E52 (search for similar items in EconPapers)
Date: 2001-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37) Track citations by RSS feed

Downloads: (external link)
http://www.bancaditalia.it/pubblicazioni/temi-disc ... 0435/tema_435_01.pdf (application/pdf)

Related works:
Working Paper: A Core Inflation Index for the Euro Area (2001) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_435_01

Access Statistics for this paper

More papers in Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2019-09-21
Handle: RePEc:bdi:wptemi:td_435_01