A0849
Title: Euro area inflation and a new core inflation measure
Authors: Claudio Morana - Universita di Milano Bicocca (Italy) [presenting]
Abstract: The driver of euro area inflation since its foundation in 1999 is investigated, focusing on current inflationary pressures. The analysis is carried out within an innovative modeling framework, where headline inflation is disentangled into a core or medium to long-term component, a cyclical component associated with business cycle developments, and a residual component related to other, short-lived factors. The proposed decomposition approach is straightforward and requires the sequential implementation of regression and principal components analysis. The proposed core inflation measure bears the interpretation of conditional expectation for headline inflation, where conditioning is made relative to monetary and supply-side drivers of underlying inflation. Also, cyclical inflation carries information on expected headline inflation, conditional to demand-side and (short-term) supply-side developments. Within this context, we are then able to track the evolution of euro area inflation since its inception.
