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The Central Bank as a risk manager: quantifying and forecasting fnflation risks Author info | Abstract | Publisher info | Download info | Related research | Statistics Lutz Kilian (University of Michigan at Ann Arbor - Department of Economics, 611 Tappan Street, Ann Arbor , MI 48109-1220, United States. )
Simone Manganelli () (European Central Bank, Postfach 160319, 60311 Frankfurt am Main, Germany. )
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We propose to regard the central banker as a risk manager who aims to contain inflation within pre-specified bounds. We develop formal tools of risk management that may be used to quantify and forecast the risks of failing to attain that objective. We illustrate the use of these risk measures in practice. First, we demonstrate the usefulness of risk forecasts in understanding the Fed's decision to tighten monetary policy in 1984, 1988, and 1994. Second, we forecast the risks of worldwide deflation for horizons of up to two years. We find that, as of September 2002, with the exception of Japan there is no evidence of substantial deflation risks. We also put the estimates of deflation risk for the United States, Germany and Japan into historical perspective. We find that only for Japan there is evidence of deflation risks that are unusually high by historical standards. JEL Classification: E31; E37; E52; E58; C22.
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Paper provided by European Central Bank in its series Working Paper Series with number
226.
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Length: 57 pages
Date of creation: Apr 2003Date of revision:
Handle: RePEc:ecb:ecbwps:20030226Contact details of provider: Postal: Postfach 16 03 19, Frankfurt am Main, Germany Phone: +49 69 1344 0 Fax: +49 69 1344 6000 Web page: http://www.ecb.europa.eu/home/html/index.en.html More information through EDIRC
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Keywords: Inflation ; deflation ; risk ; forecast ; monetary policy. ; Other versions of this item:
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