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Trimmed mean PCE inflation

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  • Jim Dolmas

Abstract

Research over the past decade has led to improved measures of core inflation in the Consumer Price Index, or CPI. This paper discusses the application of some of the insights and techniques of that line of research to the Federal Reserve Bard of Governors’ preferred inflation gauge, the price index for Personal Consumption Expenditures (PCE). The result is a new measure of core PCE inflation—the trimmed mean PCE—and a somewhat different characterization of the economy’s recent inflation experience. ; Compared to the story told by the usual “excluding food and energy” measure, the trimmed mean PCE tells us that the lows reached in 2003 weren’t quite so low and that the highs reached in mid-2004 were really a bit higher. On a 12-month basis, the new measure suggests that core PCE inflation is currently about half a percentage point higher than what is being indicated by the “excluding food and energy” inflation rate.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Dallas in its series Working Papers with number 0506.

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Date of creation: 2005
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Handle: RePEc:fip:feddwp:05-06

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Keywords: Consumer price indexes ; Personal Consumption Expenditures Price Index;

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  1. Kim, Tae-Hwan & White, Halbert, 2004. "On more robust estimation of skewness and kurtosis," Finance Research Letters, Elsevier, vol. 1(1), pages 56-73, March.
  2. Michael F. Bryan & Stephen G. Cecchetti, 1993. "Measuring Core Inflation," NBER Working Papers 4303, National Bureau of Economic Research, Inc.
  3. Danny Quah & Shaun Vahey, 1995. "Measuring Core Inflation," Bank of England working papers 31, Bank of England.
  4. Michael F. Bryan & Stephen G. Cecchetti & Rodney L. Wiggins II, 1997. "Efficient Inflation Estimation," NBER Working Papers 6183, National Bureau of Economic Research, Inc.
  5. Lawrence J. Christiano & Terry J. Fitzgerald, 1999. "The Band pass filter," Working Paper 9906, Federal Reserve Bank of Cleveland.
    • Lawrence J. Christiano & Terry J. Fitzgerald, 2003. "The Band Pass Filter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, 05.
  6. Stephen G. Cecchetti, 1997. "Measuring short-run inflation for central bankers," Review, Federal Reserve Bank of St. Louis, issue May, pages 143-155.
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Cited by:
  1. Alan K. Detmeister, 2011. "The usefulness of core PCE inflation measures," Finance and Economics Discussion Series 2011-56, Board of Governors of the Federal Reserve System (U.S.).
  2. Oguz Atuk & Mustafa Utku Ozmen, 2009. "Design and Evaluation of Core Inflation Measures for Turkey," Working Papers 0903, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  3. Brent Meyer & Guhan Venkatu, 2012. "Trimmed-mean inflation statistics: just hit the one in the middle," Working Paper 1217, Federal Reserve Bank of Cleveland.
  4. Mark A. Wynne, 2008. "How should central banks define price stability?," Globalization and Monetary Policy Institute Working Paper 08, Federal Reserve Bank of Dallas.
  5. Andrea Brischetto & Anthony Richards, 2006. "The Performance of Trimmed Mean Measures of Underlying Inflation," RBA Research Discussion Papers rdp2006-10, Reserve Bank of Australia.
  6. Fischer, Stanley, 2008. "General discussion : the role of liquidity in financial crises," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 423-430.
  7. Robert Rich & Charles Steindel, 2007. "A comparison of measures of core inflation," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 19-38.
  8. Fisher, Peter R., 2008. "Commentary : the role of liquidity in financial crises," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 413-422.
  9. Marlene Amstad & Simon Potter, 2009. "Real time underlying inflation gauges for monetary policymakers," Staff Reports 420, Federal Reserve Bank of New York.
  10. Brent Meyer & Saeed Zaman, 2013. "It’s not just for inflation: The usefulness of the median CPI in BVAR forecasting," Working Paper 1303, Federal Reserve Bank of Cleveland.
  11. Buiter, Willem H., 2008. "Central banks and financial crises," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 495-633.
  12. Stefano Siviero & Giovanni Veronese, 2011. "A policy-sensible benchmark core inflation measure," Oxford Economic Papers, Oxford University Press, vol. 63(4), pages 648-672, December.
  13. Robert Rich & Charles Steindel, 2005. "A review of core inflation and an evaluation of its measures," Staff Reports 236, Federal Reserve Bank of New York.
  14. Jim Dolmas & Mark A. Wynne, 2008. "Measuring core inflation: notes from a 2007 Dallas Fed conference," Staff Papers, Federal Reserve Bank of Dallas, issue May.
  15. Janet Koech & Mark A. Wynne, 2012. "Core import price inflation in the United States," Globalization and Monetary Policy Institute Working Paper 131, Federal Reserve Bank of Dallas.
  16. Jim Dolmas, 2009. "Excluding items from personal consumption expenditures inflation," Staff Papers, Federal Reserve Bank of Dallas, issue Jun.
  17. repec:fip:fedreq:y:2011:i:4q:p:415-430:n:vol.97no.4 is not listed on IDEAS
  18. Allen, Franklin & Carletti, Elena, 2008. "The role of liquidity in financial crises," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 379-412.
  19. Alexander L. Wolman, 2011. "K-core inflation," Economic Quarterly, Federal Reserve Bank of Richmond, issue 4Q, pages 415-430.
  20. Julie K. Smith, 2012. "PCE inflation and core inflation," Working Papers 1203, Federal Reserve Bank of Dallas.
  21. Rochet, Jean-Charles, 2008. "Commentary : rethinking capital regulation," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 473-483.

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