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Common faith or parting ways? A time varying parameters factor analysis of euro-area inflation
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Monache, Davide Delle, Petrella, Ivan and Venditti, Fabrizio (2016) Common faith or parting ways? A time varying parameters factor analysis of euro-area inflation. Advances in Econometrics, 35 . pp. 539-565. doi:10.1108/S0731-905320150000035013 ISSN 0731-9053.
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Official URL: http://dx.doi.org/10.1108/S0731-905320150000035013
Abstract
We analyze the interaction among the common and country-specific components for the inflation rates in 12 euro area countries through a factor model with time-varying parameters. The variation of the model parameters is driven by the score of the predictive likelihood, so that, conditionally on past data, the model is Gaussian and the likelihood function can be evaluated using the Kalman filter. The empirical analysis uncovers significant variation over time in the model parameters. We find that, over an extended time period, inflation persistence has fallen and the importance of common shocks has increased relatively to that of idiosyncratic disturbances. According to the model, the fall in inflation observed since the sovereign debt crisis is broadly a common phenomenon since no significant cross-country inflation differentials have emerged. Stressed countries, however, have been hit by unusually large shocks.
Item Type: | Journal Article | ||||||
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Subjects: | H Social Sciences > HB Economic Theory | ||||||
Divisions: | Faculty of Social Sciences > Warwick Business School | ||||||
Library of Congress Subject Headings (LCSH): | Interest rates -- Mathematical models -- European Union countries | ||||||
Journal or Publication Title: | Advances in Econometrics | ||||||
Publisher: | Emerald Publishing Limited | ||||||
ISSN: | 0731-9053 | ||||||
Book Title: | Dynamic Factor Models | ||||||
Official Date: | 2016 | ||||||
Dates: |
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Volume: | 35 | ||||||
Page Range: | pp. 539-565 | ||||||
DOI: | 10.1108/S0731-905320150000035013 | ||||||
Status: | Peer Reviewed | ||||||
Publication Status: | Published | ||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||
Date of first compliant deposit: | 12 May 2017 | ||||||
Date of first compliant Open Access: | 12 May 2017 |
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