The FRBNY Staff Underlying Inflation Gauge: UIG

40 Pages Posted: 12 Sep 2014

See all articles by Marlene Amstad

Marlene Amstad

The Chinese University of Hong Kong, Shenzhen

Simon Potter

Federal Reserve Bank of New York

Robert W. Rich

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Date Written: July 1, 2014

Abstract

Monetary policymakers and long-term investors would benefit greatly from a measure of underlying inflation that uses all relevant information, is available in real-time, and forecasts inflation better than traditional underlying inflation measures such as core inflation measures. This paper presents the "Federal Reserve Bank of New York (FRBNY) Staff Underlying Inflation Gauge (UIG)" for CPI and PCE. Using a dynamic factor model approach, the UIG is derived from a broad data set that extends beyond price series to include a wide range of nominal, real, and financial variables. It also considers the specific and time-varying persistence of individual subcomponents of an inflation series. An attractive feature of the UIG is that it can be updated on a daily basis, which allows for a close monitoring of changes in underlying inflation. This capability can be very useful when large and sudden economic fluctuations occur, as at the end of 2008. In addition, the UIG displays greater forecast accuracy than traditional measures of core inflation.

Keywords: Inflation, Dynamic Factor Models, Core Inflation, Monetary Policy, Forecasting

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

Suggested Citation

Amstad, Marlene and Potter, Simon and Rich, Robert W., The FRBNY Staff Underlying Inflation Gauge: UIG (July 1, 2014). BIS Working Paper No. 453. Available at SSRN: https://ssrn.com/abstract=2494897

Marlene Amstad (Contact Author)

The Chinese University of Hong Kong, Shenzhen ( email )

Simon Potter

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-6309 (Phone)
212-720-1844 (Fax)

Robert W. Rich

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States
216 579-2928 (Phone)

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