Working Paper: CEPR ID: DP880
Authors: Michael J. Artis; Robin C. Bladen-Hovell; Denise R. Osborn; Graham W. Smith; Wenda Zhang
Abstract: We set out a reference chronology for annual UK inflation, identifying nine complete cycles between 1958 and 1990. Inflation over this period is asymmetric, falling more quickly than it rises. Leading indicators are also proposed, with composite shorter and longer leading indicators constructed. These exhibit leads at peaks which are generally longer than at troughs. An evaluation of the composite series is also conducted to indicate how they might perform in real time. Overall, they give clear prior turning point information with relatively few `false signals'. Nevertheless, we find that inflation troughs are more difficult to predict than peaks.
Keywords: inflation; leading indicators; forecasting; Bayesian; cycles
JEL Codes: E31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Composite leading indicators (C43) | Inflation turning points (E31) |
| Unemployment (J64) | Inflation rates (E31) |
| Retail sales (L81) | Inflation rates (E31) |
| Inflation turning points (E31) | Asymmetrical relationship (troughs harder to predict than peaks) (E32) |