IDEAS home Printed from https://ideas.repec.org/p/fip/fednsr/420.html
   My bibliography  Save this paper

Real time underlying inflation gauges for monetary policymakers

Author

Listed:
  • Marlene Amstad
  • Simon M. Potter

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.

Suggested Citation

  • Marlene Amstad & Simon M. Potter, 2009. "Real time underlying inflation gauges for monetary policymakers," Staff Reports 420, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:420
    as

    Download full text from publisher

    File URL: https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr420.html
    Download Restriction: no
    File URL: https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr420.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Marlene Amstad & Andreas M. Fischer, 2005. "Time-varying pass-through from import prices to consumer prices: evidence from an event study with real-time data," Staff Reports 228, Federal Reserve Bank of New York.
    2. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 293-335, October.
    3. Reichlin, Lucrezia & Forni, Mario & Cristadoro, Riccardo & Veronese, Giovanni, 2001. "A Core Inflation Index for the Euro Area," CEPR Discussion Papers 3097, C.E.P.R. Discussion Papers.
    4. William T. Gavin & Kevin L. Kliesen, 2008. "Forecasting inflation and output: comparing data-rich models with simple rules," Review, Federal Reserve Bank of St. Louis, vol. 90(May), pages 175-192.
    5. Michael F. Bryan & Stephen G. Cecchetti, 1994. "Measuring Core Inflation," NBER Chapters, in: Monetary Policy, pages 195-219, National Bureau of Economic Research, Inc.
    6. Domenico Giannone & Lucrezia Reichlin & Luca Sala, 2005. "Monetary Policy in Real Time," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 161-224, National Bureau of Economic Research, Inc.
    7. Vining, Daniel R, Jr & Elwertowski, Thomas C, 1976. "The Relationship between Relative Prices and the General Price Level," American Economic Review, American Economic Association, vol. 66(4), pages 699-708, September.
    8. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
    9. Castelnuovo, Efrem & Rodriguez-Palenzuela, Diego & Nicoletti Altimari, Sergio, 2003. "Definition of price stability, range and point inflation targets: the anchoring of long-term inflation expectations," Working Paper Series 273, European Central Bank.
    10. Marlene Amstad & Andreas M. Fischer, 2009. "Are Weekly Inflation Forecasts Informative?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(2), pages 237-252, April.
    11. Bernanke, Ben S. & Boivin, Jean, 2003. "Monetary policy in a data-rich environment," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 525-546, April.
    12. Stephen G. Cecchetti, 1997. "Measuring short-run inflation for central bankers," Review, Federal Reserve Bank of St. Louis, issue May, pages 143-155.
    13. Marlene Amstad & Andreas M. Fischer, 2009. "Do macroeconomic announcements move inflation forecasts?," Review, Federal Reserve Bank of St. Louis, vol. 91(Sep), pages 507-518.
    14. Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2000. "The Generalized Dynamic-Factor Model: Identification And Estimation," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 540-554, November.
    15. Stephen G. Cecchetti, 1995. "Inflation Indicators and Inflation Policy," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 189-236, National Bureau of Economic Research, Inc.
    16. Jim Dolmas, 2005. "Trimmed mean PCE inflation," Working Papers 0506, Federal Reserve Bank of Dallas.
    17. Frederic S. Mishkin & Klaus Schmidt-Hebbel, 2001. "One decade of inflation targeting in the world : What do we know and what do we need to know?," Working Papers Central Bank of Chile 101, Central Bank of Chile.
    18. Filippo Altissimo & Antonio Bassanetti & Riccardo Cristadoro & Lucrezia Reichlin & Giovanni Veronese, 2001. "The construction of coincident and leading indicators for the euro area business cycler of the euro area business cycle," Temi di discussione (Economic working papers) 434, Bank of Italy, Economic Research and International Relations Area.
    19. Seamus Hogan & Marianne Johnson & Thérèse Laflèche, 2001. "Core Inflation," Technical Reports 89, Bank of Canada.
    20. Boivin, Jean & Ng, Serena, 2006. "Are more data always better for factor analysis?," Journal of Econometrics, Elsevier, vol. 132(1), pages 169-194, May.
    21. Michael F. Bryan & Stephen G. Cecchetti, 1999. "Inflation And The Distribution Of Price Changes," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 188-196, May.
    22. Cogley, Timothy, 2002. "A Simple Adaptive Measure of Core Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 94-113, February.
    23. Michael F. Bryan & Stephen G. Cecchetti & Rodney L. Wiggins II, 1997. "Efficient Inflation Estimation," NBER Working Papers 6183, National Bureau of Economic Research, Inc.
    24. Gordon, Robert J, 1982. "Price Inertia and Policy Ineffectiveness in the United States, 1890-1980," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1087-1117, December.
    25. Domenico Giannone & Troy D. Matheson, 2007. "A New Core Inflation Indicator for New Zealand," International Journal of Central Banking, International Journal of Central Banking, vol. 3(4), pages 145-180, December.
    26. E. T. McPHEE., 1928. "Notes," The Economic Record, The Economic Society of Australia, vol. 4(1), pages 92-95, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ricardo Reis & Mark W. Watson, 2010. "Relative Goods' Prices, Pure Inflation, and the Phillips Correlation," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(3), pages 128-157, July.
    2. Li, Xin & Pan, Bing & Law, Rob & Huang, Xiankai, 2017. "Forecasting tourism demand with composite search index," Tourism Management, Elsevier, vol. 59(C), pages 57-66.
    3. Marlene Amstad & Ye Huan & Guonan Ma, 2014. "Developing an underlying inflation gauge for China," BIS Working Papers 465, Bank for International Settlements.
    4. Amstad, Marlene & Ye, Huan & Ma, Guonan, 2018. "Developing an underlying inflation gauge for China," BOFIT Discussion Papers 11/2018, Bank of Finland Institute for Emerging Economies (BOFIT).
    5. Michał Brzoza-Brzezina & Jacek Kotłowski, 2009. "Bezwzględna stopa inflacji w gospodarce polskiej," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 9, pages 1-21.
    6. Mikael Khan & Louis Morel & Patrick Sabourin, 2013. "The Common Component of CPI: An Alternative Measure of Underlying Inflation for Canada," Staff Working Papers 13-35, Bank of Canada.
    7. Domenico Giannone & Troy D. Matheson, 2007. "A New Core Inflation Indicator for New Zealand," International Journal of Central Banking, International Journal of Central Banking, vol. 3(4), pages 145-180, December.
    8. Theodore M. Crone & N. Neil K. Khettry & Loretta J. Mester & Jason A. Novak, 2013. "Core Measures of Inflation as Predictors of Total Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(2-3), pages 505-519, March.
    9. James H. Stock & Mark W. Watson, 2016. "Core Inflation and Trend Inflation," The Review of Economics and Statistics, MIT Press, vol. 98(4), pages 770-784, October.
    10. Ádám Reiff & Judit Várhegyi, 2013. "Sticky Price Inflation Index: An Alternative Core Inflation Measure," MNB Working Papers 2013/2, Magyar Nemzeti Bank (Central Bank of Hungary).
    11. Ricardo Reis & Mark W. Watson, 2007. "Measuring Changes in the Value of the Numeraire," Working Papers 2007-7, Princeton University. Economics Department..
    12. Michal Brzoza-Brzezina & Jacek Kotlowski, 2009. "Estimating pure inflation in the Polish economy," Working Papers 37, Department of Applied Econometrics, Warsaw School of Economics.
    13. repec:zbw:bofitp:2018_011 is not listed on IDEAS
    14. Alberto Humala & Gabriel Rodr�guez, 2012. "A factorial decomposition of inflation in Peru: an alternative measure of core inflation," Applied Economics Letters, Taylor & Francis Journals, vol. 19(14), pages 1331-1334, September.
    15. Stan Plessis & Gideon Rand & Kevin Kotzé, 2015. "Measuring Core Inflation in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 83(4), pages 527-548, December.
    16. Marlene Amstad & Simon M. Potter & Robert W. Rich, 2017. "The New York Fed Staff Underlying Inflation Gauge (UIG)," Economic Policy Review, Federal Reserve Bank of New York, issue 23-2, pages 1-32.
    17. Marlene Amstad & Simon M. Potter & Robert W. Rich, 2014. "The FRBNY staff underlying inflation gauge: UIG," Staff Reports 672, Federal Reserve Bank of New York.
    18. Bjarni G. Einarsson, 2014. "A Dynamic Factor Model for Icelandic Core Inflation," Economics wp67, Department of Economics, Central bank of Iceland.
    19. The People's Bank of China, 2016. "An underlying inflation gauge (UIG) for China," BIS Papers chapters, in: Bank for International Settlements (ed.), Inflation mechanisms, expectations and monetary policy, volume 89, pages 117-121, Bank for International Settlements.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marlene Amstad & Simon M. Potter & Robert W. Rich, 2014. "The FRBNY staff underlying inflation gauge: UIG," Staff Reports 672, Federal Reserve Bank of New York.
    2. Marlene Amstad & Simon M. Potter & Robert W. Rich, 2017. "The New York Fed Staff Underlying Inflation Gauge (UIG)," Economic Policy Review, Federal Reserve Bank of New York, issue 23-2, pages 1-32.
    3. Marlene Amstad & Ye Huan & Guonan Ma, 2014. "Developing an underlying inflation gauge for China," BIS Working Papers 465, Bank for International Settlements.
    4. Riccardo Cristadoro & Giuseppe Saporito & Fabrizio Venditti, 2013. "Forecasting inflation and tracking monetary policy in the euro area: does national information help?," Empirical Economics, Springer, vol. 44(3), pages 1065-1086, June.
    5. Mark A. Wynne, 2008. "Core inflation: a review of some conceptual issues," Review, Federal Reserve Bank of St. Louis, issue May, pages 205-228.
    6. Mark A. Wynne, 2008. "Core inflation: a review of some conceptual issues," Review, Federal Reserve Bank of St. Louis, vol. 90(May), pages 205-228.
    7. Jörg Breitung & Sandra Eickmeier, 2006. "Dynamic Factor Models," Springer Books, in: Olaf Hübler & Jachim Frohn (ed.), Modern Econometric Analysis, chapter 3, pages 25-40, Springer.
    8. Amstad, Marlene & Fischer, Andreas M., 2010. "Monthly pass-through ratios," Journal of Economic Dynamics and Control, Elsevier, vol. 34(7), pages 1202-1213, July.
    9. Emil Stavrev, 2010. "Measures of underlying inflation in the euro area: assessment and role for informing monetary policy," Empirical Economics, Springer, vol. 38(1), pages 217-239, February.
    10. Dowd, Kevin & Cotter, John & Loh, Lixia, 2011. "U.S. Core Inflation: A Wavelet Analysis," Macroeconomic Dynamics, Cambridge University Press, vol. 15(4), pages 513-536, September.
    11. Marc Hallin & Roman Liska, 2008. "Dynamic Factors in the Presence of Block Structure," Working Papers ECARES 2008_012, ULB -- Universite Libre de Bruxelles.
    12. Riccardo Cristadoro & Mario Forni & Lucrezia Reichlin & Giovanni Veronese, 2001. "A core inflation index for the euro area," Temi di discussione (Economic working papers) 435, Bank of Italy, Economic Research and International Relations Area.
    13. Jinill Kim & Byung Kwun Ahn, 2012. "A New Measure for Core Inflation Based on Generalized Dynamic-Factor Model," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 18(2), pages 1-28, June.
    14. Oguz Atuk & Mustafa Utku Ozmen, 2009. "Design and Evaluation of Core Inflation Measures for Turkey," Working Papers 0903, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    15. Alan K. Detmeister, 2011. "The usefulness of core PCE inflation measures," Finance and Economics Discussion Series 2011-56, Board of Governors of the Federal Reserve System (U.S.).
    16. Domenico Giannone & Troy D. Matheson, 2007. "A New Core Inflation Indicator for New Zealand," International Journal of Central Banking, International Journal of Central Banking, vol. 3(4), pages 145-180, December.
    17. repec:zbw:bofitp:2018_011 is not listed on IDEAS
    18. Todd E. Clark, 2001. "Comparing measures of core inflation," Economic Review, Federal Reserve Bank of Kansas City, vol. 86(Q II), pages 5-31.
    19. Marc P. Giannoni & Jean Boivin, 2005. "DSGE Models in a Data-Rich Environment," Computing in Economics and Finance 2005 431, Society for Computational Economics.
    20. Bruneau, C. & De Bandt, O. & Flageollet, A., 2003. "Forecasting Inflation in the Euro Area," Working papers 102, Banque de France.
    21. Jamie Armour, 2006. "An Evaluation of Core Inflation Measures," Staff Working Papers 06-10, Bank of Canada.

    More about this item

    Keywords

    Inflation (Finance); Economic indicators; Economic forecasting; Monetary policy; Banks and banking; Central;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fednsr:420. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gabriella Bucciarelli (email available below). General contact details of provider: https://edirc.repec.org/data/frbnyus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.