Real Time Underlying Inflation Gauges for Monetary Policymakers

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Staff Reports

Real Time Underlying Inflation Gauges for Monetary Policymakers

December 2009 Number 420

JEL classification: C13, C33, C43, E31, E37

Authors: Marlene Amstad and Simon 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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39 pages / 719 kb

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