Using the First Principal Component as a Core Inflation Indicator
Carlos Marques (),
José António Machado,
Pedro Neves () and
Afonso Gonçalves da Silva
Working Papers from Banco de Portugal, Economics and Research Department
This paper investigates the consequences of non-stationarity for the principal components analysis and suggests a data transformation that allows obtaining smoother series for the first principal component to be used as a core inflation indicator. The paper also introduces a theoretical model, which allows interpreting core inflation as a common stochastic trend to the year-on-year rates of change of the price indices of the basic CPI items. Finally, it is shown that the first principal component computed in real time meets the evaluation criteria introduced in Marques et al. (2000).
JEL-codes: C43 E31 E52 (search for similar items in EconPapers)
References: Add references at CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed
Downloads: (external link)
Journal Article: Using the first principal component as a core inflation indicator (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w200109
Access Statistics for this paper
More papers in Working Papers from Banco de Portugal, Economics and Research Department Contact information at EDIRC.
Bibliographic data for series maintained by DEE-NTD ().