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Real time underlying inflation gauges for monetary policymakers

  • Marlene Amstad
  • Simon M. Potter

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.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 420.

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Date of creation: 2009
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Handle: RePEc:fip:fednsr:420
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  1. Ben S. Bernanke & Jean Boivin, 2001. "Monetary Policy in a Data-Rich Environment," NBER Working Papers 8379, National Bureau of Economic Research, Inc.
  2. Marlene Amstad & Andreas M. Fischer, 2009. "Do macroeconomic announcements move inflation forecasts?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 507-518.
  3. Michael F. Bryan & Stephen G. Cecchetti & Rodney L. Wiggins II, 1997. "Efficient Inflation Estimation," NBER Working Papers 6183, National Bureau of Economic Research, Inc.
  4. Giannone, Domenico & Matheson, Troy, 2007. "A New Core Inflation Indicator for New Zealand," CEPR Discussion Papers 6469, C.E.P.R. Discussion Papers.
  5. Marlene Amstad & Andreas M. Fischer, 2008. "Are Weekly Inflation Forecasts Informative?," Working Papers 2008-05, Swiss National Bank.
  6. Mario Forni & Marc Hallin & Lucrezia Reichlin & Marco Lippi, 2000. "The generalised dynamic factor model: identification and estimation," ULB Institutional Repository 2013/10143, ULB -- Universite Libre de Bruxelles.
  7. James Dolmas, 2005. "Trimmed mean PCE inflation," Working Papers 0506, Federal Reserve Bank of Dallas.
  8. 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.
  9. 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.
  10. Danny Quah & Shaun Vahey, 1995. "Measuring Core Inflation," Bank of England working papers 31, Bank of England.
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  12. Michael F. Bryan & Stephen G. Cecchetti, 1996. "Inflation and the Distribution of Price Changes," NBER Working Papers 5793, National Bureau of Economic Research, Inc.
  13. Timothy Cogley, 1998. "A simple adaptive measure of core inflation," Working Papers in Applied Economic Theory 98-06, Federal Reserve Bank of San Francisco.
  14. Michael F. Bryan & Stephen G. Cecchetti, 1993. "Measuring Core Inflation," NBER Working Papers 4303, National Bureau of Economic Research, Inc.
  15. Boivin, Jean & Ng, Serena, 2006. "Are more data always better for factor analysis?," Journal of Econometrics, Elsevier, vol. 132(1), pages 169-194, May.
  16. Hogan, Seamus & Marianne Johnson & Thérèse Laflèche, 2001. "Core Inflation," Technical Reports 89, Bank of Canada.
  17. Amstad, Marlene & Fischer, Andreas M, 2005. "Time-Varying Pass-Through from Import Prices to Consumer Prices: Evidence from an Event Study with Real-Time Data," CEPR Discussion Papers 5395, C.E.P.R. Discussion Papers.
  18. 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.
  19. Robert J. Gordon, 1981. "Price Inertia and Policy Ineffectiveness in the United States, 1890-1980," NBER Working Papers 0744, National Bureau of Economic Research, Inc.
  20. Rodriguez-Palenzuela, Diego & Castelnuovo, Efrem & Nicoletti-Altimari, Sergio, 2003. "Definition of price stability, range and point inflation targets: the anchoring of long-term inflation expectations," Working Paper Series 0273, European Central Bank.
  21. Cristadoro, Riccardo & Forni, Mario & Reichlin, Lucrezia & Veronese, Giovanni, 2001. "A Core Inflation Index for the Euro Area," CEPR Discussion Papers 3097, C.E.P.R. Discussion Papers.
  22. 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, issue May, pages 175-192.
  23. E. T. McPHEE., 1928. "Notes," The Economic Record, The Economic Society of Australia, vol. 4(1), pages 92-95, 05.
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