School of Economics and Finance

No. 471: Modelling Core Inflation for the UK Using a New Dynamic Factor Estimation Method and a Large Disaggregated Price Index Dataset

George Kapetanios , Queen Mary, University of London

November 1, 2002

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Recent work in the macroeconometric literature considers the problem of summarising efficiently a large set of variables and using this summary for a variety of purposes including forecasting. This paper applies a new factor extraction method to the extraction of core inflation and forecasting of UK inflation in the recent past.

J.E.L classification codes: C13, C32

Keywords:Factor models, Subspace methods, State space models