Common faith or parting ways? A time varying parameters factor analysis of Euro-area inflation

@inproceedings{Monache2016CommonFO,
  title={Common faith or parting ways? A time varying parameters factor analysis of Euro-area inflation},
  author={Davide Delle Monache and Ivan Petrella and Fabrizio Venditti},
  year={2016}
}
We analyze the interaction among the common and country specific components for the inflation rates in twelve euro area countries through a factor model with time varying parameters. The variation of the model parameters is driven by the score of the predictive likelihood, so that, conditionally on past data, the model is Gaussian and the likelihood function can be evaluated using the Kalman filter. The empirical analysis uncovers significant variation over time in the model parameters. We find… 
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