The Financial Content of Inflation Risks in the Euro Area

35 Pages Posted: 29 Jul 2013

See all articles by Philippe Andrade

Philippe Andrade

Banque de France

Valère Fourel

Banque de France; Massachusetts Institute of Technology (MIT) - Sloan School of Management

Eric Ghysels

University of North Carolina Kenan-Flagler Business School; University of North Carolina (UNC) at Chapel Hill - Department of Economics

Julien Idier

Banque de France - Centre de Recherche; European Central Bank (ECB)

Date Written: July 1, 2013

Abstract

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.

Keywords: inflation forecasts, inflation risk, survey data, financial data, MIDAS regression

JEL Classification: E31, E37, C53, C83

Suggested Citation

Andrade, Philippe and Fourel, Valère and Fourel, Valère and Ghysels, Eric and Idier, Julien, The Financial Content of Inflation Risks in the Euro Area (July 1, 2013). Banque de France Working Paper No. 437, Available at SSRN: https://ssrn.com/abstract=2302583 or http://dx.doi.org/10.2139/ssrn.2302583

Philippe Andrade (Contact Author)

Banque de France ( email )

Paris
France

Valère Fourel

Banque de France ( email )

Paris
France

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Eric Ghysels

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Gardner Hall, CB 3305
Chapel Hill, NC 27599
United States
919-966-5325 (Phone)
919-966-4986 (Fax)

HOME PAGE: http://https://eghysels.web.unc.edu/

Julien Idier

Banque de France - Centre de Recherche ( email )

31 rue Croix des Petits Champs
75049 Paris Cedex 01
France

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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