Detecting turning points in the inflation cycle

34 Pages Posted: 27 Mar 2024

Date Written: March 26, 2024

Abstract

Based on a non-parametric method we construct a leading indicator for turning points in the inflation cycle. We extract the cycle by a band pass filter and identify the turning points by the Bry Boschan algorithm. The selection of variables in the leading indicator is based on turning point matching and dynamic correlation, while the weights are adjusted for cross-correlation between the variables. We apply the method to core inflation in the Netherlands and the euro area. We show that turning points in the core inflation cycle explain inflation forecast errors. Moreover, we show that since the pandemic the cycle of core inflation has mainly been driven by external factors and that the inflation cycle will remain below trend well into 2024.

Keywords: Euro area inflation, Trend-cycle decomposition, Leading indicators, (Turning point) forecasts, Real-time analysis

JEL Classification: C82, E31, E37, E58

Suggested Citation

Hoeberichts, Marco and van den End, Jan Willem, Detecting turning points in the inflation cycle (March 26, 2024). De Nederlandsche Bank Working Paper No. 808, Available at SSRN: https://ssrn.com/abstract=4774379 or http://dx.doi.org/10.2139/ssrn.4774379

Marco Hoeberichts (Contact Author)

De Nederlandsche Bank

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Jan Willem Van den End

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
32
Abstract Views
89
PlumX Metrics