Common Persistent Factors in Inflation and Excess Nominal Money Growth and a New Measure of Core Inflation

Studies in Non Linear Dynamics and Econometrics, Vol. 6, No. 3, 2002

Posted: 2 Nov 2005

See all articles by Claudio Morana

Claudio Morana

Università di Milano Bicocca; Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS); Università degli Studi di Milano-Bicocca - Center for European Studies (CefES); Center for Economic Research on Pensions and Welfare Policies (CeRP); Rimini Center for Economic Analysis - Europe ETS; Rimini Center for Economic Analysis - HQ

Abstract

In this paper we introduce a new common long memory factor model. The model allows to estimate the common persistent component in fractionally cointegrated processes. We find evidence of cobreaking and fractional cointegration in excess nominal money growth and inflation in the euro area, and propose a new core inflation measure which takes into account both features. A comparison with other core inflation measures reveals that the proposed core inflation process is superior in terms of forecasting properties and economic interpretability.

Keywords: Long memory, common factors, fractional cointegration, Markov switching, core inflation, euro area

JEL Classification: C22, E31, E52

Suggested Citation

Morana, Claudio, Common Persistent Factors in Inflation and Excess Nominal Money Growth and a New Measure of Core Inflation. Studies in Non Linear Dynamics and Econometrics, Vol. 6, No. 3, 2002, Available at SSRN: https://ssrn.com/abstract=828044

Claudio Morana (Contact Author)

Università di Milano Bicocca ( email )

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Center for Economic Research on Pensions and Welfare Policies (CeRP) ( email )

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Italy

Rimini Center for Economic Analysis - HQ ( email )

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