A Factor Model for Euro-area Short-term Inflation Analysis

Now-casting inflation using high frequency data

“…This framework offers original estimation advantages compared to the previous literature. It avoids the need of averaging high frequency data in order to obtain monthly frequency indicators, like in Lenza and Warmedinger (2010). This allows us to fully exploit the co-movement in our dataset, without losing any information.…”

“…Lenza and Warmedinger (2010) average higher frequency (daily and weekly) data over a month and plug them in the dataset as monthly indicators for inflation. Alternatively, a new generation of models, the Mixed Data Sampling Regression Models (MIDAS), and Moretti (2010) to forecast inflation in a two step approach.…”