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Tails of Inflation Forecasts and Tales of Monetary Policy

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Author Info

  • Andrade, P.
  • Ghysels, E.
  • Idier, J.

Abstract

We introduce a new measure called Inflation-at-Risk (I@R) associated with (left and right) tail inflation risk. We estimate I@R using survey-based density forecasts. We show that it contains information not covered by usual inflation risk indicators which focus on inflation uncertainty and do not distinguish between the risks of low or high future inflation outcomes. Not only the extent but also the asymmetry of inflation risks evolve over time. Moreover, changes in this asymmetry have an impact on future inflation realizations as well as on the current interest rate central banks target.

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File URL: http://www.banque-france.fr/uploads/tx_bdfdocumentstravail/DT-407.pdf
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Bibliographic Info

Paper provided by Banque de France in its series Working papers with number 407.

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Length: 54 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:bfr:banfra:407

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Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS
Web page: http://www.banque-france.fr/
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Related research

Keywords: inflation expectations; risk; uncertainty; survey data; inflation dynamics; monetary policy.;

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Cited by:
  1. Rossi, Barbara & Sekhposyan, Tatevik, 2013. "Conditional predictive density evaluation in the presence of instabilities," Journal of Econometrics, Elsevier, vol. 177(2), pages 199-212.
  2. Kenny, Geoff & Kostka, Thomas & Masera, Federico, 2013. "Can macroeconomists forecast risk? Event-based evidence from the euro area SPF," Working Paper Series 1540, European Central Bank.
  3. Robert Rich & Joseph Song & Joseph Tracy, 2012. "The measurement and behavior of uncertainty: evidence from the ECB Survey of Professional Forecasters," Staff Reports 588, Federal Reserve Bank of New York.

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