The Role of Cyclical Inflation: Evidence from Japan

Takuya Sakaguchi and Masahiko Shibamoto
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Takuya Sakaguchi: Graduate School of Economics, Kobe University, JAPAN

No DP2025-22, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: Monitoring inflation is an important aspect of policymaking, but understanding the factors that drive inflation remains challenging. In this paper, we construct a cyclically sensitive inflation (CSI) index for Japan and examine its usefulness from several perspectives. Specifically, we investigate (1) the dynamic relationship from financial markets and the real economy to cyclical inflation, (2) how well cyclical inflation can predict future inflation trends, and (3) the effectiveness of the CSI as a real-time indicator of economic slack. Our empirical results show that the CSI can complement headline and core inflation measures and, when used together, help distinguish whether price changes are due to temporary factors or persistent pressures associated with the business cycle.

Keywords: Cyclical inflation; Business cycle; Financial market; Inflation forecast; Japanese economy (search for similar items in EconPapers)
JEL-codes: C32 E31 E32 E52 E58 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2025-07
New Economics Papers: this item is included in nep-for and nep-mon
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