The ENSO cycle and forecastability of global inflation and output growth : evidence from standard and mixed-frequency multivariate singular spectrum analyses

Abstract

In this paper, the role of the El Niño-Southern Oscillation (ENSO), measured by the Equatorial Southern Oscillation Index (EQSOI), is used to formally forecast the inflation and GDP growth rates of the United States, advanced (excluding the United States) and emerging countries, as well as the world economy (barring the United States). We rely on univariate and multivariate singular spectrum analyses (SSA), as well as mixed-frequency version of the latter since the EQSOI is monthly, while GDP is available only at quarterly frequency unlike monthly inflation rates. We find statistically significant evidence of the ability of the EQSOI in forecasting inflation and GDP growth rates of the four economic blocs, though there are exceptions in terms of forecasting gains associated with inflation rate of emerging economies and the growth rate of the United States. Our results have important implications for policymakers.