Evaluating core inflation measures: A statistical inference approach

Juan Carlos Castañeda and Rodrigo Chang

Latin American Journal of Central Banking (previously Monetaria), 2023, vol. 4, issue 4

Abstract: We propose a framework for consistently evaluating core inflation measures via a straightforward application of sound statistical inference principles. Under this framework, inflation measures (both headline and core) are regarded as estimators tracking the economy’s true, unobserved inflation rate. We depart from the arbitrary convention in the literature of approximating true (or trend) inflation as some moving average of the observed headline inflation. Instead, we regard trend inflation as the unobserved inflation rate that corresponds to the whole population of consumer price changes while the observed inflation measures are estimators of trend inflation based on particular samples of consumer price changes. Hence, the evaluation of inflation measures is rigorously derived from the sampling distribution properties of the corresponding estimators, in contrast to the use of ad hoc criteria for evaluating core inflation measures, prevalent both in the academic literature and in most central banks’ practices. We implement our evaluation approach for the Guatemalan Consumer Price Index (CPI) data by applying a computational bootstrapping technique. Finally, we showcase the evaluation results for the Guatemalan data regarding the performance of some widely used core inflation measures.

Keywords: Statistical simulation; Core inflation; Trend inflation; Inflation measures; Bootstrapping (search for similar items in EconPapers)
JEL-codes: C63 E31 E52 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S2666143823000200
Gold Open Access

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:lajcba:v:4:y:2023:i:4:s2666143823000200

DOI: 10.1016/j.latcb.2023.100099

Access Statistics for this article

Latin American Journal of Central Banking (previously Monetaria) is currently edited by Manuel Ramos-Francia

More articles in Latin American Journal of Central Banking (previously Monetaria) from Elsevier
Bibliographic data for series maintained by Catherine Liu ().