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The Taming of the Skew: Asymmetric Inflation Risk and Monetary Policy

Author

Listed:
  • Andrea De Polis

    (Banco de España)

  • Leonardo Melosi

    (European University Institute and CEPR)

  • Ivan Petrella

    (Collegio Carlo Alberto, University of Turin and CEPR)

Abstract

Time-varying asymmetric inflation risks generate persistent stagflationary effects. A quantitative general equilibrium model with time-varying skewness in the distribution of cost-push shocks matches these effects. Central to the analysis is a representation theorem that provides a tractable characterization of a broad class of models with asymmetric shock distributions. The theorem enables a closed-form characterization of optimal monetary policy, according to which the central bank should lean against the balance of inflation risks, while rendering quantitative general-equilibrium models with time-varying risks amenable to counterfactual and scenario analysis.

Suggested Citation

  • Andrea De Polis & Leonardo Melosi & Ivan Petrella, 2026. "The Taming of the Skew: Asymmetric Inflation Risk and Monetary Policy," Working Papers 2626, Banco de España.
    • Handle: RePEc:bde:wpaper:2626
    DOI: https://doi.org/10.53479/44247
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    More about this item

    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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