The Financial Content of Inflation Risks in the Euro Area

Abstract

Julien Idier ¶ * We would like to thank Dick van Dijk, two anonymous referees, and Libero Monteforte for their insightful comments on a previous draft of the paper. The third author acknowledges support from the Banque de France. We thank Béatrice Saes-Escorbiac and Aurélie Touchais for excellent research assistance. This paper does not necessarily reflect the views of the Banque de France.

The Joint Dynamics of U.S. And Euro-Area Inflation Rates: Expectations and Timevarying Uncertainty

“…17 Using volatility factors in the specification of the conditional expectation of inflation is for instance considered in Caporale, Onorante, and Paesani (2012) and Andrade, Fourel, Ghysels, and Idier (2014). It is notably consistent with the findings of Capistrán and Timmermann (2009) (Table 3).…”

Asymmetry in the Conditional Distribution of Euro-area Inflation

“…This asymmetric relation appears important also for forecasting purpose: the performance of the model in an out-of-sample setting is higher for lower quantiles and the accuracy gain decreases nearly monotonically across quantiles. Interestingly, other previous works investigated possible determinants of inflation risks: for instance Andrade et al [2014] look at how financial market data affect survey-based inflation risk indicators in the euro area and Lopez-Salido and Loria [2019] document that financial conditions can carry substantial and persistent lowinflation risks both in the US and in the euro area. This paper differs from them because it focuses explicitly on the role of business cycle indicators rather than financial variables on the inflation outlook.…”