Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153768
Authors: 
Hubrich, Kirstin
Marcellino, Massimiliano
Beck, Günter W.
Year of Publication: 
2011
Series/Report no.: 
ECB Working Paper 1334
Abstract: 
We use a novel disaggregate sectoral euro area data set with a regional breakdown to investigate price changes and suggest a new method to extract factors from over-lapping data blocks. This allows us to separately estimate aggregate, sectoral, country-specific and regional components of price changes. We thereby provide an improved estimate of the sectoral factor in comparison with previous literature, which decomposes price changes into an aggregate and idiosyncratic component only, and interprets the latter as sectoral. We find that the sectoral component explains much less of the variation in sectoral regional inflation rates and exhibits much less volatility than previous findings for the US indicate. We further contribute to the literature on price setting by providing evidence that country- and region-specific factors play an important role in addition to the sector-specific factors. We conclude that sectoral price changes have a “geographical” dimension, that leads to new insights regarding the properties of sectoral price changes.
Subjects: 
common factor models
Disaggregated prices
euro area regional and sectoral inflation
JEL: 
E31
C38
D4
F4
Document Type: 
Working Paper

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