Trimmed-Mean Inflation Statistics: Just Hit the One in the Middle

Brent Meyer and Guhan Venkatu

No 2014-3, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: This paper reinvestigates the performance of trimmed-mean inflation measures some 20 years since their inception, asking whether there is a particular trimmed-mean measure that dominates the median consumer price index (CPI). Unlike previous research, we evaluate the performance of symmetric and asymmetric trimmed means using a well known equality of prediction test. We find that there is a large swath of trimmed means that have statistically indistinguishable performance. Also, although the swath of statistically similar trims changes slightly over different sample periods, it always includes the median CPI - an extreme trim that holds conceptual and computational advantages. We conclude with a simple forecasting exercise that highlights the advantage of the median CPI (and trimmed-mean estimators in general) relative to other standard measures in forecasting headline inflation.

Keywords: inflation; inflation forecasting; trimmed-mean estimators (search for similar items in EconPapers)
JEL-codes: E31 E37 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2014-03-01
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (12)

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Working Paper: Trimmed-mean inflation statistics: just hit the one in the middle (2012)
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