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Disinflation and reliability of underlying inflation measures

Elena Deryugina and Alexey Ponomarenko

No wps44, Bank of Russia Working Paper Series from Bank of Russia

Abstract: We estimated a Non-Stationary Dynamic Factor model and used it to generate artificial episodes of disinflation (permanent change in the mean inflation rate). These datasets were used to test the forecasting abilities of alternative underlying inflation indicators (i.e. the measures that capture sustained movements in inflation extracted from information in a disaggregated set of price data). We found that the out of sample forecast errors of the benchmark underlying inflation measures (based on unobserved trend extraction) are more severely affected by disinflation than the alternative simpler methods (based on exclusion or reweighting approaches). We also show that a Non-Stationary Dynamic Factor model may be employed for extraction of the unobserved trend to be used as an underlying inflation measure.

Keywords: Underlying inflation; Non-Stationary Dynamic Factor model; Russia. (search for similar items in EconPapers)
JEL-codes: C32 E31 E32 E52 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2019-09
New Economics Papers: this item is included in nep-cba, nep-cis, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Disinflation and Reliability of Underlying Inflation Measures (2020) Downloads
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