Inflation at Risk

58 Pages Posted: 23 Oct 2019

See all articles by David Lopez-Salido

David Lopez-Salido

Board of Governors of the Federal Reserve System

Francesca Loria

Board of Governors of the Federal Reserve System

Date Written: October 2019

Abstract

We find that the recent muted response of the conditional mean of inflation to economic conditions does not convey an adequate representation of the overall pattern of inflation dynamics. Analyzing data from the 1970s reveals ample variability in the entire conditional distribution of inflation. Focusing on the period from 2000 onward bolsters this evidence. Using time-series data for the United States and the Euro Area, we document that looking at the entire conditional distribution of inflation uncovers – after controlling for the state of the labor market and inflation expectations – that heightened financial conditions carry substantial and persistent low-inflation risks, a feature overlooked by much of the literature. Our paper offers a new empirical perspective to existing macroeconomic models, showing that changes in credit conditions are also key to understand the dynamics of the inflation tails.

Keywords: Inflation risk, Quantile regression

JEL Classification: C21, E31

Suggested Citation

Lopez-Salido, David and Loria, Francesca, Inflation at Risk (October 2019). CEPR Discussion Paper No. DP14074, Available at SSRN: https://ssrn.com/abstract=3474447

David Lopez-Salido (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Francesca Loria

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
0
Abstract Views
316
PlumX Metrics