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Trend, Seasonal, and Sectoral Inflation in the Euro Area

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  • James H. Stock
  • Mark W. Watson

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.

Suggested Citation

  • James H. Stock & Mark W. Watson, 2019. "Trend, Seasonal, and Sectoral Inflation in the Euro Area," Working Papers Central Bank of Chile 847, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:847
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    References listed on IDEAS

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    Cited by:

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