Real Time Underlying Inflation Gauges for Monetary Policymakers

39 Pages Posted: 6 Jan 2010

See all articles by Marlene Amstad

Marlene Amstad

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

Simon Potter

Peter G. 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

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

Marlene Amstad

Harvard Kennedy School ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

The Chinese University of Hong Kong, Shenzhen ( email )

Simon Potter (Contact Author)

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

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