Measuring US Core Inflation: A Common Trends Approach
Fabio C. Bagliano
University of Turin - Department of Economics and Statistics; Center for Research on Pensions and Welfare Policies (CeRP); Collegio Carlo Alberto
Università di Milano Bicocca; International Centre for Economic Research (ICER); Center for Economic Research on Pensions and Welfare Policies (CeRP); Fondazione Eni Enrico Mattei (FEEM); Università degli Studi di Milano-Bicocca - Department of Economics, Quantitative Methods and Business Strategies (DEMS)
Journal of Macroeconomics, Vol. 25, pp. 197-212, 2003
In this paper the long-run trend in CPI inflation (core inflation) for the US over the 1960-2000 period is estimated using a common trends model. In this framework, core inflation is interpreted and constructed as the long-run forecast of inflation conditional on the information contained in nominal money growth, output fluctuations and movements in the oil price. Unlike other commonly used measures of core inflation, the common-trends core inflation rate exploits the long-run link between inflation and monetary growth, a strong feature of the data.
Keywords: Core inflation, common trends, US
JEL Classification: C32, E31, E52Accepted Paper Series
Date posted: May 8, 2003
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