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2013•Economic Commentary (Federal Reserve Bank of Cleveland)Open access

Forecasting Inflation? Target the Middle

Brent Meyer, Guhan Venkatu, Saeed Zaman

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Abstract

The Median CPI is well-known as an accurate predictor of future inflation. But it's just one of many possible trimmed-mean inflation measures. Recent research compares these types of measures to see which tracks future inflation best. Not only does the Median CPI outperform other trims in predicting CPI inflation, it also does a better job of predicting PCE inflation, the FOMC's preferred measure, than the core PCE.

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What this paper is about

The Median CPI is well-known as an accurate predictor of future inflation. But it's just one of many possible trimmed-mean inflation measures. Recent research compares these types of measures to see which tracks future inflation best. Not only does the Median CPI outperform other trims in predicting CPI inflation, it also does a better job of predicting PCE inflation, the FOMC's preferred measure, than the core PCE.

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Available abstract

The Median CPI is well-known as an accurate predictor of future inflation. But it's just one of many possible trimmed-mean inflation measures. Recent research compares these types of measures to see which tracks future inflation best. Not only does the Median CPI outperform other trims in predicting CPI inflation, it also does a better job of predicting PCE inflation, the FOMC's preferred measure, than the core PCE.

Key concepts: Inflation (cosmology), Truncated mean, Core inflation, Economics, Measure (data warehouse), Econometrics, Core (optical fiber), Real interest rate

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