The Taming of the Skew: Asymmetric Inflation Risk and Monetary Policy

Andrea De Polis, Leonardo Melosi and Ivan Petrella

No 19760, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We document that inflation risk in the U.S. varies significantly over time and is often asymmetric. To analyze the first-order macroeconomic effects of these asymmetric risks within a tractable framework, we construct the beliefs representation of a general equilibrium model with skewed distribution of markup shocks. Optimal policy requires shifting agents' expectations counter to the direction of inflation risks. We perform counterfactual analyses using a quantitative general equilibrium model to evaluate the implications of incorporating real-time estimates of the balance of inflation risks into monetary policy communications and decisions.

Keywords: Optimal monetary policy; risk-adjusted inflation targeting (search for similar items in EconPapers)
JEL-codes: C53 E31 E52 (search for similar items in EconPapers)
Date: 2024-12
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Related works:
Working Paper: The taming of the skew: asymmetric inflation risk and monetary policy (2025)
Working Paper: The Taming of the Skew: Asymmetric Inflation Risk and Monetary Policy (2024)
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