Efficient Inflation Estimation / Michael F. Bryan, Stephen G. Cecchetti, Rodney L. Wiggins II.

Format:

Book

Author/Creator:

Bryan, Michael F.

Contributor:

National Bureau of Economic Research.

Cecchetti, Stephen G.

Wiggins, Rodney L.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6183.

NBER working paper series no. w6183

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1997.

Summary:

This paper investigates the use of trimmed means as high-frequency estimators of" inflation. The known characteristics of price change distributions, specifically the observation" that they generally exhibit high levels of kurtosis, imply that simple averages of price data are" unlikely to produce efficient estimates of inflation. Trimmed means produce superior estimates" of core inflation,' which we define as a long-run centered moving average of CPI and PPI" inflation. We find that trimming 9% from each tail of the CPI price-change distribution from the tails of the PPI price-change distribution, yields an efficient estimator of core inflation" for these two series, although lesser trims also produce substantial efficiency gains. Historically the optimal trimmed estimators are found to be nearly 23% more efficient (in terms of root-mean-square error) than the standard mean CPI Moreover, the efficient estimators are robust to sample period and to the definition of the" presumed underlying long-run trend in inflation.

Notes:

Print version record

September 1997.