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Real Time Underlying Inflation Gauges for Monetary Policymakers

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Federal Reserve Bank of New York Staff Reports, Real Time Underlying Inflation Gauges for Monetary Policymakers, Marlene Amstad, Simon Potter, Staff Report no. 420, December 2009

  • “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 Consumer Price Index (CPI) and Personal Consumption Expenditure
    De‡ator (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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