Fabio C. Bagliano

Core Inflation in the Euro Area

Using a common trends model, a forward-looking ‘core’ inflation measure is estimated for the Euro area based on long-run relations among major macroeconomic variables, bearing the interpretation of long-run inflation forecast. The proposed measure may be particularly suitable for the ‘two-pillar’ monetary policy strategy of the ECB which focuses on medium-term inflation prospects.

Measuring US core inflation: A common trends approach

In this paper the long-run trend in CPI inflation (core inflation) for the US over the 1960-2000 period is estimated using a common trends model. In this framework, core inflation is interpreted and constructed as the long-run forecast of inflation conditional on the information contained in nominal money growth, output fluctuations and movements in the oil price. Unlike other commonly used measures of core inflation, the common-trends core inflation rate exploits the long-run link between inflation and monetary growth, a strong feature of the data.

Inflation and Monetary Dynamics in the Us: a Quantity-Theory Approach

In this article we investigate the long-run link between inflation and money growth in the United States since 1960. A measure of the long-run inflation trend is constructed, which bears the interpreation of ‘monetary’ inflation rate and is directly related to the excess nominal money growth process (money growth less output growth), as postulated by the quantity theory. Consistent with the memory characteristics of the series, their fractional integration and cointegration properties are taken into account in empirical modelling. The proposed measure is then compared with several existing measures of ‘core inflation’, aimed at capturing long-run inflation dynamics but unrelated to money growth. The ‘monetary’ long-run inflation rate performs well in out-of-sample forecasting exercises especially over a 2–3-year horizon, yielding valuable information to monetary policymakers.

The Cyclical Behaviour of Inventories: European Cross-country Evidence from the Early 1990s Recession

This paper employs data for a panel of firms from France, Italy and the UK to study the effect of the recession of the early 1990s on inventory investment, controlling for cyclical fluctuations at the firm level. The results clearly show some common patterns across countries, pointing to the relevance of financial factors (namely, the level of leverage) in propagating initial recessionary shocks. Moreover, Italian firms, especially if small and young, seem more likely to suffer from a reduction in the value of collateralizable assets possibly originated by restrictive policy actions.

Permanent and Transitory Dynamics in House Prices and Consumption: Some Implications for the Real Effects of the Financial Crisis

In this article, a small-scale macroeconomic system is estimated in the framework of a common trends model, in order to explore the dynamic interactions between real house prices, consumption expenditure and output in the US and major European economies. The results point to important differences across countries, with long-run house price effects on consumption only for France, Germany and the US. However, interactions between house prices and consumption are detected in all countries at shorter horizons, with important implications of the current unwinding of the sub-prime crisis for real activity. Evidence for international comovements in the common trend component of house price dynamics is also found.

Life-Cycle Asset Allocation and Unemployment Risk

In this paper we extend the traditional life cycle model of saving and portfolio choice to allow for possible long-term unemployment spells to have permanent effects on subsequent labor income prospects. The risk of losing future labor income could imply strong human capital erosion for the investor at any age, dampening the incentive to invest in risky stocks. The resulting optimal portfolio share invested in stocks may be relatively flat in age, more in line with the available evidence and contrary to the predictions of traditional life-cycle models.