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Evaluation

Economic Outlook

Level 2: General knowledge of the subject (6-9 Years)

C:MM:L2

C:FE:L2

C:RM:L2

S:CT:L3

S:DA:L3

T:AN:L3

T:IC:L2

T:CO:L2

T:CR:L2

T:IA:L2

CS-22 - Modeling Medical Inflation

Tuesday, November 7, 2023
9:45 AM – 10:45 AM PST
Location: Catalina Ballroom (3rd Floor)
Livestreamed
It is shown that headline PCE (Personal Consumption Expenditure) inflation (which is the Federal Reserve's official inflation measure) has strong random walk properties, and so does the Health Care component of PCE inflation. It is then demonstrated how to model Health Care inflation as a function of headline inflation in an error-correction model. The long-term relation between Health Care inflation and headline inflation is derived. The error-correction model and the resulting long-term relation allows the actuary to derive projections for Health Care inflation based on the Federal Reserve's inflation projections.

Learning Objectives:

  • Discover the long-term relation between Health Care inflation and headline PCE inflation.
  • Learn how rates of inflation are highly persistent due to their random walk properties.
  • Derive projections of health care inflation from Federal Reserve headline inflation projections.
  • Discover the long-term relation between Health Care inflation and headline PCE inflation.