Inflation Factors

Danilo Leiva-Leon (), Viacheslav Sheremirov, Jenny Tang and Egon Zakrajšek ()

No 25-5, Working Papers from Federal Reserve Bank of Boston

Abstract: This paper develops an econometric framework for identifying latent factors that provide real time estimates of supply and demand conditions shaping goods- and services-related price pressures in the U.S. economy. The factors are estimated using category-specific personal consumption expenditures (PCE) data on prices and quantities, using a sign-restricted dynamic factor model that imposes theoretical predictions of the effects of fluctuations in supply and demand on prices and associated quantities through factor loadings. The resulting estimates are used to decompose total PCE inflation into contributions from common factors—goods demand, goods supply, services demand, services supply, and inflation expectations—and category specific idiosyncratic components. Validation exercises demonstrate that the estimated factors provide an informative and coherent narrative of inflation dynamics over time and can be effectively used for forecasting and policy analysis.

Keywords: inflation; goods; services; supply; demand; expectations; dynamic factor models; sign restrictions; factor loadings (search for similar items in EconPapers)
JEL-codes: C11 C32 E31 (search for similar items in EconPapers)
Pages: 67
Date: 2025-08-01
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.bostonfed.org/publications/research-de ... flation-factors.aspx Summary (text/html)
https://www.bostonfed.org/-/media/Documents/Workingpapers/PDF/2025/wp2505.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedbwp:101428

Ordering information: This working paper can be ordered from

DOI: 10.29412/res.wp.2025.05

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Boston Contact information at EDIRC.
Bibliographic data for series maintained by Catherine Spozio ().