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Weighted Median Inflation: Is This Core Inflation?

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  • Smith, Julie K

Abstract

This paper investigates core inflation defined as the best predictor of inflation. I compare forecasts obtained using the mean, weighted median, trimmed mean, and less food and energy inflation rates for the consumer price index and the personal consumption expenditure deflator for the current U.S. monetary policy regime. Another issue addressed is that of the systematic bias that exists due to the differences in means of these measures. I test whether correcting for this bias can lead to better inflation forecasts. This paper finds that adjusting for bias improves forecasting and that the weighted median is a better forecaster than the alternative measures and thus is a good measure of core inflation.

Suggested Citation

  • Smith, Julie K, 2004. "Weighted Median Inflation: Is This Core Inflation?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 253-263, April.
    • Handle: RePEc:mcb:jmoncb:v:36:y:2004:i:2:p:253-63
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    References listed on IDEAS

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    1. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 293-335, October.
    2. Luis J. Álvarez & María de los Llanos Matea, 1999. "Underlying Inflation Measures in Spain," Working Papers 9911, Banco de España.
    3. Apel, Mikael & Jansson, Per, 1999. "A Parametric Approach for Estimating Core Inflation and Interpreting the Inflation Process," Working Paper Series 80, Sveriges Riksbank (Central Bank of Sweden).
    4. Freeman, Donald G., 1998. "Do core inflation measures help forecast inflation?," Economics Letters, Elsevier, vol. 58(2), pages 143-147, February.
    5. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
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