Measuring core inflation in Italy comparing aggregate vs. disaggregate price data

Abstract

This paper focuses on the core inflation measurement in Italy using univariate (national-level inflation) vs. multivariate (city-level inflation) models during the period 1970-2006. We derive algebraic expressions that allow comparison between the reduced form parameters of univariate and multivariate local level models in the context of contemporaneous and temporal aggregation. We illustrate the relevance of these theoretical results for the empirical analysis of time series. Using Italian data, we find that multivariate and univariate models extract similar core inflation measures when analyzing the moderate-low inflation period. In contrast, the two competing models yield different trends when modeling the Great Inflation period.

Forecasting Aggregated Moving Average Processes with an Application to the Euro Area Real Interest Rate

“…This paper shows that aggregating across second (or first)‐order (integrated) moving average processes leads to an aggregate process whose parameters are direct functions of the micro processes. That is, no iteration procedure is needed to recover the parameters of the aggregate process provided that the data generation process is known (similar results relative to the aggregation of first‐order moving average processes have been achieved by Ku and Seneta, , and Sbrana and Silvestrini, , ). Those results are shown in the next section, which considers the aggregation of both independent and dependent processes.…”