TY - JOUR
AU - Bryan,Michael F.
AU - Cecchetti,Stephen G.
AU - II,Rodney L. Wiggins
TI - Efficient Inflation Estimation
JF - National Bureau of Economic Research Working Paper Series
VL - No. 6183
PY - 1997
Y2 - September 1997
UR - http://www.nber.org/papers/w6183
L1 - http://www.nber.org/papers/w6183.pdf
N1 - Author contact info:
Stephen G. Cecchetti
Brandeis International Business School
415 South Street
Brandeis University
Waltham, MA 02453
Tel: 781/736-2249
Fax: 781/736-2251
E-Mail: cecchetti@brandeis.edu
AB - 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.
ER -