Title

Trend, Seasonal, and Sectoral Inflation in the Euro Area

Author(s)

James H. Stock James Stock (Harvard University)

Mark W. Watson Mark Watson (Princeton University)

Abstract

An unobserved components model with stochastic volatility is used to decompose aggregate Euro area HICP inflation into a trend, seasonal and irregular components. Estimates of the components based only on aggregate data are imprecise: the width of 68% error bands for the seasonally adjusted value of aggregate inflation is 1.0 percentage points in the final quarter of the sample. Estimates are more precise using a multivariate model for a 13-sector decomposition of aggregate inflation, which yields a corresponding error band that is roughly 40% narrower. Trend inflation exhibited substantial variability during the 2001-2018 period and this variability closely mirrored variation in real activity

Creation Date

2019-01

Section URL ID

Paper Number

2019-30

URL

http://www.princeton.edu/~mwatson/papers/EA_Sectoral_Inflation_Stock_Watson_20190127.pdf

File Function

Jel

E31, C39

Keyword(s)

Inflation, Component Model, Stochastic Volatility

Suppress

false

Series

13