INFLATION MEASUREMENT FOR CENTRAL BANKERS

A website about trimmed-mean inflation estimators and related issues

Should a Central Bank “Target” Trimmed-Mean Estimators of Inflation?

This idea arises from the (common) mischaracterization of trimmed-mean (and median) inflation estimators as alternative measures of “core” inflation. However, trimmed-mean estimators are not “core” measures in the conventional sense. They are merely more efficient estimators than the weighted mean for the types of distributions characteristic of inflation data. Understood in this way, both the headline (all items) measure and the trimmed-mean are sample estimates of the same object. That is, the targeting of one is tantamount to the targeting of the other. Whether a central bank should target an overall inflation rate, or a “core” rate, is a separate issue.

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