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The financial content of inflation risks in the euro area

  • Andrade, P.
  • Fourel, V.
  • Ghysels, E.
  • Idier, I.

Recent studies emphasize that survey-based inflation risk measures are informative about future inflation and thus useful for monetary authorities. However, these data are typically available at a quarterly frequency whereas monetary policy decisions require a more frequent monitoring of such risks. Using the ECB survey of professional forecasters, we show that high-frequency financial market data have predictive power for the low-frequency survey-based inflation risk indicators observed at the end of a quarter. We rely on MIDAS regressions to handle the problem of mixing data with different frequencies that such an analysis implies. We also illustrate that upside and downside risks react differently to financial indicators.

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Paper provided by Banque de France in its series Working papers with number 437.

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Length: 35 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:bfr:banfra:437
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Web page: http://www.banque-france.fr/

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  1. Eric Ghysels & Arthur Sinko & Rossen Valkanov, 2007. "MIDAS Regressions: Further Results and New Directions," Econometric Reviews, Taylor & Francis Journals, vol. 26(1), pages 53-90.
  2. García, Juan Angel & Manzanares, Andrés, 2007. "What can probability forecasts tell us about inflation risks?," Working Paper Series 0825, European Central Bank.
  3. Carlos Capistrán & Allan Timmermann, 2006. "Forecast Combination with Entry and Exit of Experts," Working Papers 2006-08, Banco de México.
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  7. Stephen G. Cecchetti, 2008. "Measuring the Macroeconomic Risks Posed by Asset Price Booms," NBER Chapters, in: Asset Prices and Monetary Policy, pages 9-43 National Bureau of Economic Research, Inc.
  8. Gita Gopinath & Roberto Rigobon, 2008. "Sticky Borders," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 531-575.
  9. Andrade, P. & Ghysels, E. & Idier, J., 2012. "Tails of Inflation Forecasts and Tales of Monetary Policy," Working papers 407, Banque de France.
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  15. Marco Aiolfi & Carlos Capistrán & Allan Timmermann, 2010. "Forecast Combinations," CREATES Research Papers 2010-21, Department of Economics and Business Economics, Aarhus University.
  16. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
  17. Andrade, Philippe & Le Bihan, Hervé, 2013. "Inattentive professional forecasters," Journal of Monetary Economics, Elsevier, vol. 60(8), pages 967-982.
  18. Carlos Bowles & Roberta Friz & Veronique Genre & Geoff Kenny & Aidan Meyler & Tuomas Rautanen, 2007. "The ECB survey of professional forecasters (SPF) – A review after eight years’ experience," Occasional Paper Series 59, European Central Bank.
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  23. Clemen, Robert T., 1989. "Combining forecasts: A review and annotated bibliography," International Journal of Forecasting, Elsevier, vol. 5(4), pages 559-583.
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