Dynamic factor models and external instrument identification are two recent advances in the empirical macroeconomic literature. This paper combines the two approaches in order to study the effects of monetary policy shocks. I use this novel framework to re-examine the effects found by Forni and...

In this article, we propose a cointegration-based Permanent-Transitory decomposition for nonstationary Dynamic Factor Models. Our methodology exploits the cointegration relations among the observable variables and assumes they are driven by a common and an idiosyncratic component. The common...

This paper details the rationale and methodology behind the construction of the Persistent and Common Component of Inflation (PCCI), a measure of underlying inflation in the euro area. The PCCI reflects the view that underlying inflation captures widespread developments across the Harmonised...