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.

Recommended Citation

Claudio Morana (2002) "Common Persistent Factors in Inflation and Excess Nominal Money Growth and a New Measure of Core Inflation", Studies in Nonlinear Dynamics & Econometrics: Vol. 6: No. 3, Article 3.
http://www.bepress.com/snde/vol6/iss3/art3

Related Files

morana_datacode.zip (22 kB)
Data and code for submission