Maximally Forward-Looking Core Inflation

arXiv:2404.05209v1 Announce Type: cross
Abstract: Timely monetary policy decision-making requires timely core inflation measures. We create a new core inflation series that is explicitly designed to succeed at that goal. Precisely, we introduce the Assemblage Regression, a generalized nonnegative ridge regression problem that optimizes the price index's subcomponent weights such that the aggregate is maximally predictive of future headline inflation. Ordering subcomponents according to their rank in each period switches the algorithm to be learning supervised trimmed inflation - or, …

abstract arxiv core decision econ.em generalized index inflation making monetary policy policy predictive price regression ridge series stat.ml type