Evaluating Exclusion-from-Core Measures of Inflation using Real-Time Data

Using parametric and nonparametric methods, inflation persistence is examined through the relationship between the exclusions-from-core measure of inflation and total inflation for two sample periods and five in-sample forecast horizons ranging from one to twelve quarters over fifty vintages of real-time data in two measures of inflation: personal consumption expenditure and the consumer price index. This paper finds that core inflation is only able to capture the overall trend of total inflation for the twelve-quarter in-sample forecast horizon using the consumer price index in both the parametric and nonparametric models in the longer sample period. The nonparametric model outperforms the parametric model for both data samples and for all five in-sample forecast horizons.