The FRBNY Staff Underlying Inflation Gauge: UIG

Marlene Amstad, Simon Potter and Robert Rich

No 453, BIS Working Papers from Bank for International Settlements

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 "Federal Reserve Bank of New York (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.

Keywords: Inflation; Dynamic Factor Models; Core Inflation; Monetary Policy; Forecasting (search for similar items in EconPapers)
Pages: 40 pages
Date: 2014-07
New Economics Papers: this item is included in nep-cba, nep-for, nep-mac and nep-mon
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Citations: View citations in EconPapers (13)

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Working Paper: The FRBNY staff underlying inflation gauge: UIG (2014)
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