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Weighted Median Inflation: Is This Core Inflation?

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  • Smith, Julie K

Abstract

This paper investigates core inflation defined as the best predictor of inflation. I compare forecasts obtained using the mean, weighted median, trimmed mean, and less food and energy inflation rates for the consumer price index and the personal consumption expenditure deflator for the current U.S. monetary policy regime. Another issue addressed is that of the systematic bias that exists due to the differences in means of these measures. I test whether correcting for this bias can lead to better inflation forecasts. This paper finds that adjusting for bias improves forecasting and that the weighted median is a better forecaster than the alternative measures and thus is a good measure of core inflation.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 36 (2004)
Issue (Month): 2 (April)
Pages: 253-63

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Handle: RePEc:mcb:jmoncb:v:36:y:2004:i:2:p:253-63

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. L.J. Álvarez & M de los Llanos Matea, 2001. "Underlying Inflation Measures in Spain," DNB Staff Reports (discontinued) 60, Netherlands Central Bank.
  2. James H. Stock & Mark W. Watson, 1999. "Forecasting Inflation," NBER Working Papers 7023, National Bureau of Economic Research, Inc.
  3. Freeman, Donald G., 1998. "Do core inflation measures help forecast inflation?," Economics Letters, Elsevier, vol. 58(2), pages 143-147, February.
  4. Apel, Mikael & Jansson, Per, 1999. "A Parametric Approach for Estimating Core Inflation and Interpreting the Inflation Process," Working Paper Series 80, Sveriges Riksbank (Central Bank of Sweden).
  5. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
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