This paper uses a restricted factor model to estimate the HICP index excluding relative prices changes. The index thus obtained, hereinafter referred to as pure inflation, demonstrates stronger relationship to the central bank instrument (short-term interest rate) than the HICP index and selected measures of core inflation. Pure inflation has also a forecasting performance for future HICP comparable or better than that of competing models. The estimated variable indicates a much weaker role of changes in relative prices in the recent period of rising inflation (2006-2008) than during previous inflation increases (1999-2000 and 2004-05). This may show that inflation was mainly driven by demand pressures in the years 2006-2008.
In order to set up a list of libraries that you have access to,
you must first login
or sign up.
Then set up a personal list of libraries from your profile page by
clicking on your user name at the top right of any screen.