A0187
Title: The dynamic nature of macroeconomic risks
Authors: Sarah Mouabbi - Banque de France (France) [presenting]
Jean-Paul Renne - HEC University of Lausanne (Switzerland)
Adrien Tschopp - University of Lausanne (Switzerland)
Abstract: A dynamic factor model is used featuring time-varying uncertainty and asymmetry to study the relationship between inflation and the real economy. Demand and supply factors are identified for the Euro-area economy using survey data on inflation and GDP growth. The model allows for a trend and cycle decomposition, which enables us to study the drivers of prices and real activity at the business cycle and lower frequencies. Furthermore, by exploiting higher-order moments of survey responses, downside/upside-tail risk measures are produced across horizons. Findings suggest that the output gap is mainly determined by demand factors, while the recent rise in inflation is attributed to negative supply factors. Moreover, uncertainty around inflation expectations has been time-varying and large since the Great Recession, while asymmetry is a prominent characteristic of expectations about future inflation and real activity since the COVID-19 crisis.
