Measuring Trend Inflation Using Financial Condition: The Case of Japan

Masahiko Shibamoto

No DP2024-11, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: This paper proposes a novel but simple method of measuring trend inflation by utilizing financial time series data. The idea is that inflation and financial conditions share a common stochastic trend. The study shows that this common trend has a statistically significant power in predicting future inflation in Japan. The proposed method outperforms other measures of core inflation in many cases because it eliminates transitory inflation fluctuations and captures the slow-moving changes in inflation.

Keywords: Inflation; Stochastic trend; Cointegration; Financial market; Forecasting (search for similar items in EconPapers)
JEL-codes: C32 E31 E32 E52 E58 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2024-03
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Persistent link: https://EconPapers.repec.org/RePEc:kob:dpaper:dp2024-11

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