In this paper the long-run trend in CPI inflation (core inflation) for Italy is estimated over the 1962-1997 period within the framework of a multivariate common trends model. In this framework core inflation is directly linked to money and wage growth and interpreted as the long-run forecast of inflation. This measure displays several desirable properties: lower variability than observed inflation, forecasting power, robustness to the estimation sample and economic interpretability.

J.E.L. classification numbers: C32, E31, E52
Keywords: core inflation, common trend, inflation targeting                                                        Download WP PDF (400 kb)