Measuring Core Inflation for Turkey - Trimmed Means Approach-

Abstract

This paper is one of the the pioneers in measuring the core inflation for Turkey and uses the methodology developed by Bryan, Cecchetti and Wiggins II (1997). As the price change distributions are not normally distributed, weighted sample means are not the efficient estimators of inflation. In such leptokurtic distributions trimmed means provide statistically more efficient estimators of inflation. For the consumer prices, using historical data, the optimal trim is found to be 19 percent from the each tail of the cross sectional distribution and for the wholesale prices it is found to be 12 percent (percentage that minimizes MAD). Trimmed mean estimators of inflation move in line with the headline inflation in the long run, implying a potential use for future inflation forecasting.