PCE inflation and core inflation
This 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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- Laurence Ball & N. Gregory Mankiw, 1992.
"Relative-Price Changes as Aggregate Supply Shocks,"
NBER Working Papers
4168, National Bureau of Economic Research, Inc.
- Ball, L. & Mankiw, G.H., 1992. "Relative-Price Change as Aggregate Supply Shocks," Harvard Institute of Economic Research Working Papers 1609, Harvard - Institute of Economic Research.
- Laurence Ball & N. Gregory Mankiw, 1993. "Relative-price changes as aggregate supply shocks," Working Papers 93-13, Federal Reserve Bank of Philadelphia.
- 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.
- Robert W. Rich & Charles Steindel, 2005. "A review of core inflation and an evaluation of its measures," Staff Reports 236, Federal Reserve Bank of New York.
- James Dolmas, 2005. "Trimmed mean PCE inflation," Working Papers 0506, 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.
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