Tails of Inflation Forecasts and Tales of Monetary Policy
Banque de France
University of North Carolina Kenan-Flagler Business School; University of North Carolina (UNC) at Chapel Hill - Department of Economics
European Central Bank (ECB)
November 1, 2012
UNC Kenan-Flagler Research Paper No. 2013-17
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.
Number of Pages in PDF File: 51
Keywords: Tail risk, Survey of Professional Forecasters
JEL Classification: E40, E47
Date posted: November 3, 2012
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