New approach predicts inflation trends, guides optimal monetary policy decisions.
Understanding seasonal patterns in consumer prices is crucial for predicting inflation. A new method combines inflation forecasts and monetary policy decisions, especially in economies with strong seasonal fluctuations. By analyzing consumer prices in the Kyrgyz Republic, researchers found that error-correction models with seasonal components outperform other models in predicting inflation. These models also help determine optimal monetary policy strategies to achieve inflation targets. This study shows that considering seasonality and monetary policy is key to accurate inflation forecasting.