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Behavior of a New Median PCE Measure: A Tale of Tails

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  • Daniel R. Carroll
  • Randal Verbrugge

Abstract

We introduce two new measures of trend inflation, a median PCE inflation rate and a median PCE excluding OER inflation rate, and investigate their performance. Our analysis indicates that both perform comparably to other simple trend inflation estimators such as the trimmed-mean PCE. Furthermore, we find that the performance of the median PCE is related to skewness in the distribution of cross-sectional growth rates across categories in the PCE, and our results suggest that the Bowley skewness statistic may be useful in forecasting.

Suggested Citation

  • Daniel R. Carroll & Randal Verbrugge, 2019. "Behavior of a New Median PCE Measure: A Tale of Tails," Economic Commentary, Federal Reserve Bank of Cleveland, issue July.
    • Handle: RePEc:fip:fedcec:00102
    DOI: 10.26509/frbc-ec-201910
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    File URL: https://doi.org/10.26509/frbc-ec-201910
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    References listed on IDEAS

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    1. Richard A. Ashley & Randall J. Verbrugge., 2006. "Mis-Specification in Phillips Curve Regressions: Quantifying Frequency Dependence in This Relationship While Allowing for Feedback," Working Papers e06-11, Virginia Polytechnic Institute and State University, Department of Economics.
    2. Brent Meyer & Saeed Zaman, 2019. "The usefulness of the median CPI in Bayesian VARs used for macroeconomic forecasting and policy," Empirical Economics, Springer, vol. 57(2), pages 603-630, August.
    3. Michael F. Bryan & Christopher J. Pike, 1991. "Median price changes: an alternative approach to measuring current monetary inflation," Economic Commentary, Federal Reserve Bank of Cleveland, issue Dec.
    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. Mick Silver, 2007. "Core Inflation: Measurement and Statistical Issues in Choosing Among Alternative Measures," IMF Staff Papers, Palgrave Macmillan, vol. 54(1), pages 163-190, May.
    6. James Dolmas, 2005. "Trimmed mean PCE inflation," Working Papers 0506, Federal Reserve Bank of Dallas.
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    Cited by:

    1. Daniel R. Carroll & Ross Cohen-Kristiansen, 2020. "Why Are Headline PCE and Median PCE Inflations So Far Apart?," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2020(24), pages 1-6, October.
    2. Saeed Zaman, 2019. "Cyclical versus Acyclical Inflation: A Deeper Dive," Economic Commentary, Federal Reserve Bank of Cleveland, issue September.

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    Keywords

    inflation; measurement;

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