Fed paper analyses core inflation measurement

federal reserve

A working paper, published by the Federal Reserve in June, tests new measures of core inflation by excluding items with a high variance from the basket of goods used to calculate the indexes.

Author Alan Detmeister uses data from the US personal consumption expenditures (PCE) price index from 1978-2009 to produce 60 specifications of possible new indexes. The paper finds it is possible to produce a better index based on past data, but the index is no better than the PCE in predicting future

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