Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/120811
Authors: 
Amstad, Marlene
Potter, Simon
Rich, Robert
Year of Publication: 
2014
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 672
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 '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.
Subjects: 
Inflation
Dynamic Factor Models
Core Inflation
Monetary Policy
Forecasting
JEL: 
C13
C33
C43
E31
E37
Document Type: 
Working Paper

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