The central banker as a risk manager

Frank Smets

Research Bulletin, 2005, vol. 2, 6-7

Abstract: We present a risk management tool for monetary policy. We argue that two necessary elements for analysing risk in this context are: 1) The forecast distribution of the inflation rate; and 2) a measure of the attitude of the central banker towards inflation risk relative to deflation risk. The relevant information in the forecast distribution of inflation can be summarised by a simple analytical tool that we refer to as the “balance of risks”. The balance of risks indicates the extent to which upward risk to inflation outweighs the downward risk. JEL Classification: E31, E52, E58

Keywords: monetary policy; inflation; output; risk; preferences; policy rule (search for similar items in EconPapers)
Date: 2005-04
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbrbu:2005:0002:2

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