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The FRBNY staff underlying inflation gauge: UIG

Author

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  • Amstad, Marlene

    (Federal Reserve Bank of New York)

  • Potter, Simon M.

    () (Federal Reserve Bank of New York)

  • Rich, Robert W.

    () (Federal Reserve Bank of New York)

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.

Suggested Citation

  • Amstad, Marlene & Potter, Simon M. & Rich, Robert W., 2014. "The FRBNY staff underlying inflation gauge: UIG," Staff Reports 672, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:672
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    References listed on IDEAS

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    Cited by:

    1. Marlene Amstad & Ye Huan & Guonan Ma, 2014. "Developing an underlying inflation gauge for China," BIS Working Papers 465, Bank for International Settlements.
    2. Deryugina, Elena & Ponomarenko, Alexey & Sinyakov, Andrey & Sorokin, Constantine, 2015. "Evaluating underlying inflation measures for Russia," BOFIT Discussion Papers 24/2015, Bank of Finland, Institute for Economies in Transition.
    3. Bjarni G. Einarsson, 2014. "A Dynamic Factor Model for Icelandic Core Inflation," Economics wp67, Department of Economics, Central bank of Iceland.
    4. 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.

    More about this item

    Keywords

    expectations; survey forecasts; imperfect information; term structure of disagreement;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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