Tail risk evaluated in French paper’s new inflation measure
A working paper published by Banque de France in November proposes a new measure of inflation that accounts for the impact of tail risk on the expectations – and realisation – of future inflation levels.
The authors, Philippe Andrade, Eric Ghysels and Julien Idier, consider the risks of extreme high and low future inflation outcomes, and find the balance between the two extremes impacts the future inflation rate.
The paper refers to this balance as ‘asymmetry risk', and the authors find a one
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