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

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.
Year of publication:
2007
Authors: Morana, Claudio
Published in:
Studies in Nonlinear Dynamics & Econometrics. - Berkeley Electronic Press. - Vol. 6.2007, 3, p. 1092-1092
Publisher: Berkeley Electronic Press
Subject: long memory | common factors | fractional cointegration | Markov switching | core inflation | euro area
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Type of publication: Article
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