PCE inflation and core inflation
AbstractThis paper investigates the forecasting accuracy of the trimmed mean inflation rate of the Personal Consumption Expenditure (PCE) deflator. Earlier works have examined the forecasting ability of limited-influence estimators (trimmed means and the weighted median) of the Consumer Price Index but none have compared the weighted median and trimmed mean of the PCE. Also addressed is the systematic bias that appears due to the differences in the means of inflation measures over the sample. This paper supports earlier results that limited-influence estimators provide better forecasts of future inflation than does the popular measure of core inflation, PCE inflation minus food and energy; therefore, these limited-influence estimators are core inflation.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Dallas in its series Working Papers with number 1203.
Date of creation: 2012
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-14 (All new papers)
- NEP-FOR-2012-07-14 (Forecasting)
- NEP-MAC-2012-07-14 (Macroeconomics)
- NEP-MON-2012-07-14 (Monetary Economics)
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- Harvey, David & Leybourne, Stephen & Newbold, Paul, 1997. "Testing the equality of prediction mean squared errors," International Journal of Forecasting, Elsevier, vol. 13(2), pages 281-291, June.
- Freeman, Donald G., 1998. "Do core inflation measures help forecast inflation?," Economics Letters, Elsevier, vol. 58(2), pages 143-147, February.
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- Jim Dolmas, 2005. "Trimmed mean PCE inflation," Working Papers 05-06, Federal Reserve Bank of Dallas.
- Smith, Julie K, 2004. "Weighted Median Inflation: Is This Core Inflation?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 253-63, April.
- 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.
- Kevin Dowd & John Cotter, 2011.
"U.S. Core Inflation: A Wavelet Analysis,"
200617, Geary Institute, University College Dublin.
- James Bullard, 2011. "Measuring inflation: the core is rotten," Review, Federal Reserve Bank of St. Louis, issue July, pages 223-234.
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