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Detecting turning points in the inflation cycle

Author

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  • Marco Hoeberichts
  • Jan Willem van den End

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.

Suggested Citation

  • Marco Hoeberichts & Jan Willem van den End, 2024. "Detecting turning points in the inflation cycle," Working Papers 808, DNB.
    • Handle: RePEc:dnb:dnbwpp:808
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    File URL: https://www.dnb.nl/media/5espb20y/working_paper_no-808.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Euro area inflation; Trend-cycle decomposition; Leading indicators; (Turning point) forecasts; Real-time analysis;
    All these keywords.

    JEL classification:

    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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