Author Description

A measure of underlying inflation has an important role to play as a guideline for monetary policy. This paper obtains a measure of underlying inflation in the United States using a structural vector autoregressive methodology. The measure is based on the assumption that movements in measured inflation are the result of one-time shocks to prices arising from supply side developments and of persistent shocks to the inflation rate arising from demand side developments due to monetary policy shocks. The model is estimated with monthly data and includes consumer prices, capacity utilization, producer prices of finished consumer goods, and import prices.