Deryugina, Elena Ponomarenko, Alexey Sinyakov, Andrey Sorokin, Constantine
Year of Publication:
BOFIT Discussion Papers 24/2015
We apply several tests to the underlying inflation metrics used in practice by central banks and/or proposed in the scientific literature, in an attempt to find the best-performing indicators. We find that although there is no single best measure of underlying inflation, indicators calculated on the basis of dynamic factor models are generally among the best performers. These best performers not only outdid the simpler traditional underlying indicators (trimmed and exclusion-based measures) but also proved to be economically meaningful and inter-pretable.