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

27 Pages Posted: 4 Apr 2015

See all articles by Brent Meyer

Brent Meyer

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Guhan Venkatu

Federal Reserve Bank of Cleveland

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2014

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

JEL Classification: E31, E37

Suggested Citation

Meyer, Brent H. and Venkatu, Guhan, Trimmed-Mean Inflation Statistics: Just Hit the One in the Middle (March 1, 2014). FRB Atlanta Working Paper No. 2014-3, Available at SSRN: https://ssrn.com/abstract=2580290 or http://dx.doi.org/10.2139/ssrn.2580290

Brent H. Meyer (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Guhan Venkatu

Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

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