Real Time Underlying Inflation Gauges for Monetary Policymakers

Amstad, Marlene; Potter, Simon

doi:10.2139/ssrn.1532280

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Real Time Underlying Inflation Gauges for Monetary Policymakers

FRB of New York Staff Report No. 420

39 Pages Posted: 6 Jan 2010

See all articles by Marlene Amstad

Marlene Amstad

The Chinese University of Hong Kong, Shenzhen; Harvard Kennedy School

Simon Potter

Peterson Institute for International Economics

Date Written: December 1, 2009

Abstract

Central banks analyze a wide range of data to obtain better measures of underlying inflationary pressures. Factor models have widely been used to formalize this procedure. Using a dynamic factor model this paper develops a measure of underlying inflation (UIG) at time horizons of relevance for monetary policymakers for both CPI and PCE. The UIG uses a broad data set allowing for high-frequency updates on underlying inflation. The paper complements the existing literature on U.S. “core” measures by illustrating how UIG is used and interpreted in real time since late 2005.

Keywords: inflation, dynamic factor models, core inflation, monetary policy, forecasting

JEL Classification: C13, C33, C43, E31, E37

Suggested Citation: Suggested Citation

Amstad, Marlene and Amstad, Marlene and Potter, Simon, Real Time Underlying Inflation Gauges for Monetary Policymakers (December 1, 2009). FRB of New York Staff Report No. 420, Available at SSRN: https://ssrn.com/abstract=1532280 or http://dx.doi.org/10.2139/ssrn.1532280