<p>Let's say I want to know what happened to the value of the U.S. dollar between three minutes and two minutes back from ... NOW. I  have given myself a two minute slack period for data collection and analysis. And what I have are ratios at which dollars were  exchanged for many things at the beginning and end of that minute, and hence, the change in the rate of exchange for each of those things. Limiting myself to thick markets with publicly visible prices, we have at least two broad classes of assets available at the required frequency. First, we have extremely liquid,  money-like assets like Treasury bills, money-market funds, and currency pairs. Next, we have funds holding assets usually regarded as stable repositories of value, like gold or real estate.</p>
<p>However, the only things we ever observe or can observe are ratios -- to one another and to themselves in the past (i.e. ratios of ratios for the latter). It seems to me like there ought to be enough data there,  except that every observation involves a change in the value of an asset and a change in the value of the dollar,  and I have not come up with a method I trust to tease them apart. Is it plausible that the first principle component of all those price vectors would be the dollar value change (since it is common)? Could I regard the dollar value like a particle buffeted by by changes in related assets, and try to track its location with a Kalman filter? Is there a way to do it with a simultaneous equation model? (Though I'd rather not have to come up with minute-frequency instruments for the Euro or REITs).</p>

CC BY-SA 4.0
2021-07-19T12:15:05.857Z
I am confused. The body of your post seems to refer to relative prices, while your question itself seems to be about consumer price inflation. Which one is it? Or does it refer to both? What exactly do you mean by the "value of a dollar" (with respect to what?)?
BrsG
CC BY-SA 4.0
2021-08-28T21:12:23.897Z
Where exactly is inflation in your question? Also, no one making markets for FX or gold or whatever will look at inflation when quoting prices intraday. It's almost entirely demand and supply. OK, maybe inflation expectations may impact demand and supply but such short time periods are so noisy in finance that imho there is no way to nowcast anything (apart from maybe the price itself for ultra high frequency).
AKdemy
<inflation><money><asset-pricing><securities><forecasting>
Has anyone developed a good methodology for high-frequency inflation nowcasting?
andrewH
# Has anyone developed a good methodology for high-frequency inflation nowcasting?

(Asked by: username_0 on 2021-07-19)

Let's say I want to know what happened to the value of the U.S. dollar between three minutes and two minutes back from ... NOW. I have given myself a two minute slack period for data collection and analysis. And what I have are ratios at which dollars were exchanged for many things at the beginning and end of that minute, and hence, the change in the rate of exchange for each of those things. Limiting myself to thick markets with publicly visible prices, we have at least two broad classes of assets available at the required frequency. First, we have extremely liquid, money-like assets like Treasury bills, money-market funds, and currency pairs. Next, we have funds holding assets usually regarded as stable repositories of value, like gold or real estate.

However, the only things we ever observe or can observe are ratios -- to one another and to themselves in the past (i.e. ratios of ratios for the latter). It seems to me like there ought to be enough data there, except that every observation involves a change in the value of an asset and a change in the value of the dollar, and I have not come up with a method I trust to tease them apart. Is it plausible that the first principle component of all those price vectors would be the dollar value change (since it is common)? Could I regard the dollar value like a particle buffeted by by changes in related assets, and try to track its location with a Kalman filter? Is there a way to do it with a simultaneous equation model? (Though I'd rather not have to come up with minute-frequency instruments for the Euro or REITs).

**Tags:** inflation, money, asset-pricing, securities, forecasting
> **Comments:**
> **username_1**: I am confused. The body of your post seems to refer to relative prices, while your question itself seems to be about consumer price inflation. Which one is it? Or does it refer to both? What exactly do you mean by the "value of a dollar" (with respect to what?)?  
> **username_2**: Where exactly is inflation in your question? Also, no one making markets for FX or gold or whatever will look at inflation when quoting prices intraday. It's almost entirely demand and supply. OK, maybe inflation expectations may impact demand and supply but such short time periods are so noisy in finance that imho there is no way to nowcast anything (apart from maybe the price itself for ultra high frequency).  

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## 0 answers

