Document Type
Article
Publication Date
12-2001
Publication Title
De Economist
Abstract
The debate over including asset prices in the construction of an inflation statistic has attracted renewed attention in recent years. Virtually all of this (and earlier) work on incorporating asset prices into an aggregate price statistic has been motivated by a presumed, but unidentified transmission mechanism through which asset prices are leading indicators of inflation at the retail level. This paper takes an alternative, longer-term perspective on the issue and argues that the exclusion of asset prices introduces an excluded goods bias in the computation of the inflation statistic that is of interest to the monetary authority. This idea is implemented using a relatively modern statistical technique, a dynamic factor index. This statistical algorithm allows researchers to see through the excessively noisy asset price data that have frustrated earlier researchers who have attempted to integrate these prices into an aggregate measure.
Keywords
asset prices, inflation measurement, excluded goods bias, dynamic factor index
Volume
149
Issue
4
First Page
405
DOI
10.1023/A:1014650017264
Rights
© 2002 Kluwer Academic Publishers
Recommended Citation
Bryan, Michael F.; Cecchetti, Stephen G.; and O'Sullivan, Róisín, "Asset Prices in the Measurement of Inflation" (2001). Economics: Faculty Publications, Smith College, Northampton, MA.
https://scholarworks.smith.edu/eco_facpubs/34
Comments
Archived as published.