Abstract
AbstractThe paper seeks to obtain an optimal asymmetric trimmed mean-based core inflation measure in the class of trimmed mean measures when the distribution of price changes is leptokurtic and skewed to the right for any given period. Several estimators based on asymmetric trimmed mean approach are constructed and estimates generated by use of these estimators are evaluated on the basis of certain established empirical criteria. The paper also provides the method of trimmed mean expression “in terms of percentile score.” This study uses 69 monthly price indices which are constituent components of Wholesale Price Index for the period, April 1994 to April 2009, with 1993–1994 as the base year. Results of the study indicate that an optimally trimmed estimator is found when we trim 29.5% from the left-hand tail and 20.5% from the right-hand tail of the distribution of price changes.
Highlights
Among various approaches to measuring core inflation discussed in the literature, the limited influence estimator (LIE) approach has gained considerable attention
Despite various shortcomings of Wholesale Price Index (WPI) index, we focus on the WPI mainly because the Reserve Bank of India (RBI) bases its definition of price stability in terms of this price index
The results indicate that among 168 trimmed means, 43 pass this test, suggesting that these 43 trimmed are unbiased trimmed mean measures
Summary
Among various approaches to measuring core inflation discussed in the literature, the limited influence estimator (LIE) approach has gained considerable attention. There are two kinds of measures based on the LIE approach: the conventional symmetric trimmed mean measures and the asymmetric trimmed mean measures. Use of symmetric trimmed mean and median as a core inflation measure is ABOUT THE AUTHORS. After a BTech in Mechanical Engineering from IIT Kanpur, he obtained his PhD in Economics from the Indian Statistical Institute (Delhi Center). He holds the position of the coordinator of the Programme for Gandhian Economic Thought at the University of Hyderabad. His other research interests are in the areas of development economics and economic theory
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