Leading inflation indicators for Greece

Abstract

This paper investigates whether leading indicators of inflation can be found for the Greek economy since this can help identify turning points in inflation. This is of great importance for Greece since the prime concern of current monetary policy is to reduce inflation and to stabilise it at low levels so as to meet the relevant Maastricht criterion. The underlying assumption is that inflation, like output, is cyclical, with peaks and troughs defining clear inflation cycles. Using the methodology initially established by Burns and Mitchell (1946, Measuring Business Cycles, Columbia University Press) for identifying peaks and troughs in the business cycle, we develop individual leading indicators as well as composite indices for inflation. We also assess their usefulness in ‘predicting’ downswings and upswings of inflation.