Title: Tails of inflation forecasts and tales of monetary policy
Authors: Philippe Andrade - Banque de France (France) [presenting]
Eric Ghysels - University of North Carolina Kenan and University of North Carolina at Chapel Hill (United States)
Julien Idier - Banque de France (France)
Abstract: A new measure called Inflation-at-Risk (I@R) associated with (left and right) inflation tail risk is introduced. 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 / deflation risks vary over time. Moreover, changes in inflation risks matter for macroeconomic outcomes: they help predict future inflation realizations and have an impact on the interest rate the central bank targets.