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The financial content of inflation risks in the euro area

Philippe Andrade (), Valère Fourel, Eric Ghysels and Julien Idier

International Journal of Forecasting, 2014, vol. 30, issue 3, 648-659

Abstract: Recent studies have emphasized that survey-based inflation risk measures are informative about future inflation, and thus are useful for monetary authorities. However, these data are typically only available at a quarterly frequency, whereas monetary policy decisions require a more frequent monitoring of such risks. Using the ECB Survey of Professional Forecasters, we show that high-frequency financial market data have predictive power for the low-frequency survey-based inflation risk indicators observed at the end of a quarter. We rely on MIDAS regressions for handling the problem of mixing data with different frequencies that such an analysis implies. We also illustrate that upside and downside risks react differently to financial indicators.

Keywords: Inflation forecasts; Inflation risk; Survey data; Financial data; MIDAS regression (search for similar items in EconPapers)
Date: 2014
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Handle: RePEc:eee:intfor:v:30:y:2014:i:3:p:648-659