Tracking Trend Inflation: Nonseasonally Adjusted Variants of the Median and Trimmed-Mean CPI
We make five contributions. We demonstrate that extant trimmed-mean and median CPI construction procedures depart from Bureau of Labor Statistics index construction procedures, and that the departures don’t make much of a difference. We produce nonseasonally adjusted variants of the trimmed-mean CPI and median CPI, and demonstrate that these are useful real-time estimates of trend inflation; the NSA median CPI outperforms the median CPI, but both SA and NSA variants of the median and the trimmed-mean CPI easily dominate the so-called “core” CPI. We introduce superior ex post measures of trend inflation. We demonstrate that a small amount of time-series averaging reaps large rewards. Finally, we discuss using model-averaging as a new direction for simple and robust trend inflation indicators.
JEL classification: E31, E32, E37.
Keywords: inflation measurement, trimmed-mean inflation estimators, seasonal adjustment, trend inflation, time averaging.
Suggested citation: Higgins, Amy, and Randal Verbrugge, 2015. “Tracking Trend Inflation: Nonseasonally Adjusted Variants of the Median and Trimmed-Mean CPI,” Federal Reserve Bank of Cleveland, Working Paper no. 15-27.