Is It Time to Reassess the Focal Role of Core PCE Inflation?

Verbrugge, Randal J.

doi:10.26509/frbc-wp-202110

Cited by 10 publications

(3 citation statements)

References 40 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…These measures are weighted medians or trimmed means of the distribution of industry price changes. A number of studies find that these core measures are less volatile and more closely related to economic slack than XFE inflation (Dolmas and Koenig 2019;Verbrugge 2021;Ball and others 2021). 3 This paper focuses on one specific outlier exclusion measure of core inflation, the weighted median CPI inflation rate published by the Federal Reserve Bank of Cleveland.…”

Section: Ia Measuring Core Inflationmentioning

confidence: 99%

Understanding US Inflation during the COVID-19 Era

Ball¹,

Leigh²,

Mishra³

2022

eca

View full text Add to dashboard Cite

This paper analyzes the dramatic rise in US inflation since 2020, which we decompose into a rise in core inflation as measured by the weighted median inflation rate and deviations of headline inflation from core. We explain the rise in core inflation with two factors: the tightening of the labor market as captured by the ratio of job vacancies to unemployment, and the pass-through into core inflation from past shocks to headline inflation. The headline shocks themselves are explained largely by increases in energy prices and by supply chain problems as captured by backlogs of orders for goods and services. Looking forward, we simulate the future path of inflation for alternative paths of the unemployment rate, focusing on the projections of Federal Reserve policymakers in which unemployment rises only modestly to 4.4 percent. We find that this unemployment path returns inflation to near the Federal Reserve's target only under optimistic assumptions about both inflation expectations and the Beveridge curve relating the unemployment and vacancy rates. Under less benign assumptions about these factors, the inflation rate remains well above target unless unemployment rises by more than the Federal Reserve projects.

show abstract

Section: Ia Measuring Core Inflationmentioning

confidence: 99%

Understanding US Inflation during the COVID-19 Era

Ball¹,

Leigh²,

Mishra³

2022

eca

View full text Add to dashboard Cite

show abstract

“…These measures are weighted medians or trimmed means of the distribution of industry price changes. A number of studies find that these core measures are less volatile and more closely related to economic slack than XFE inflation (for example, Dolmas and Koenig, 2019;Verbrugge, 2021;and Ball and others, 2021b). 1 This paper focuses on one specific outlier-exclusion measure of core, the weighted median CPI inflation rate published by the Federal Reserve Bank of Cleveland.…”

Section: A Measuring Core Inflationmentioning

confidence: 99%

Understanding U.S. Inflation During the COVID Era

Leigh¹,

Ball²,

Mishra³

2022

IMF Working Papers

View full text Add to dashboard Cite

Stock for valuable comments. We thank Regis Barnichon for providing us with historical job openings data; Mattia Coppo, Yiyang Han, Nino Kodua, and Kyung Woong Koh for excellent research support; and Eduard Laurito and Gabi Ionescu for administrative support. All errors remaining are our own. The views expressed here are those of the authors and do not necessarily represent those of the IMF, its Management and Executive Board, or IMF policy. A draft version of this paper was presented at the Brookings Papers on Economic Activity (BPEA) Fall 2022 conference held in September 2022; and the final version of this paper will be published in the Fall 2022 BPEA issue.

show abstract

“…Accordingly, policymakers at most central banks monitor a range of inflation measures to come to an informed assessment about the underlying inflationary pressures. Over the past decade, increased attention has been paid to trimmed-mean inflation estimators, 1 as these provide signs of any broad-based inflationary pressures or the lack of them (see Mertens, 2016;Verbrugge, 2021).…”

Section: Introductionmentioning

confidence: 99%

Improving inflation forecasts using robust measures

Verbrugge

Zaman

2023

Working Paper (Federal Reserve Bank of Cleveland)

Self Cite

View full text Add to dashboard Cite

Theory and extant empirical evidence suggest that the cross-sectional asymmetry across disaggregated price indexes might be useful in forecasting aggregate inflation. Trimmed-mean inflation estimators have been shown to be useful devices for forecasting headline PCE inflation. But is this because they signal the underlying trend or because they implicitly signal asymmetry in the underlying distribution? We address this question by augmenting a "hard" to beat benchmark headline PCE inflation forecasting model with robust trimmed-mean inflation measures and robust measures of the cross-sectional skewness, both computed using the 180+ components of the PCE price index. Our results indicate significant gains in the point and density accuracy of PCE inflation forecasts over medium- and longer-term horizons, up through and including the COVID-19 pandemic. Improvements in accuracy stem mainly from the trend information implicit in trimmed-mean estimators, but skewness information is also useful. An examination of goods and services PCE inflation provides similar inference.

show abstract

Is It Time to Reassess the Focal Role of Core PCE Inflation?

Cited by 10 publications

References 40 publications

Understanding US Inflation during the COVID-19 Era

Understanding US Inflation during the COVID-19 Era

Understanding U.S. Inflation During the COVID Era

Improving inflation forecasts using robust measures

Contact Info

Product

Resources

About