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Working Paper
Improving the Median CPI: Maximal Disaggregation Isn't Necessarily Optimal
For decades, the Federal Reserve Bank of Cleveland (FRBC) has produced the Median Consumer Price Index (CPI). It has proven useful in various contexts, such as forecasting and understanding post-COVID inflation dynamics. Historically, revisions/improvements to the FRBC methodology have involved increasing the level of disaggregation in the CPI components. Thus, it may be reasonable to assume that further disaggregation improves the properties of the median CPI. We theoretically demonstrate: not necessarily. We then empirically explore the impact of further disaggregation by examining fifteen ...
Working Paper
The Effect of Component Disaggregation on Measures of the Median and Trimmed-Mean CPI
For decades, the Federal Reserve Bank of Cleveland (FRBC) has produced median and trimmed-mean consumer price index (CPI) measures. These have proven useful in various contexts, such as forecasting and understanding post-COVID inflation dynamics. Revisions to the FRBC methodology have historically involved increasing the level of disaggregation in the CPI components, which has improved accuracy. Thus, it may seem logical that further disaggregation would continue to enhance its accuracy. However, we theoretically demonstrate that this may not necessarily be the case. We then explore the ...
Working Paper
Improving the Median CPI: Maximal Disaggregation Isn't Necessarily Optimal
Median Consumer Price Indexes have proved useful in many contexts and are used worldwide as key policymaking inputs. Historically, US Median CPI improvements involved increasing the CPI component level of disaggregation; one might reasonably assume that further disaggregation would lead to further improvements. We theoretically demonstrate herein: not necessarily. We then empirically explore the impact of further disaggregation. Substantially more disaggregation in the shelter indexes and slightly more disaggregation in the remaining components improve the ability of Median CPI to track the ...