Modelling Core Inflation for the UK Using a New Dynamic Factor Estimation Method and a Large Disaggregated Price Index Dataset

Abstract

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.Factor models, Subspace methods, State space models