I study Inflation at Risk for four euro area countries: Italy, Germany, France and Spain. I model a simple Phillips’ curve relation and estimate a series of two-steps quantile regressions, at different forecasting horizons. I create two measures of upside risk: expected longrise and upside relative entropy, that correlate across countries to different degrees. The fitting of a theoretical distribution allows me to study the moments of the distribution of the Phillips curve; this yields interesting findings for both inflation at risk and uncertainty literatures. I run a SVAR to assess the effects of central bank information (CBI) shocks on these risk measures, as well as other economic variables, comparing the IRFs across countries. CBI shocks cause an increase in interbank lending rates. In all countries except Germany, inflation responds positively, unemployment negatively and expected longrise increases. Germany is insulated from the effects of CBI shocks, in the sense that its IRFs are not statistically significant. Upside relative entropy responds heterogeneously across countries. An extension that accounts for financial conditions shows that this heterogeneity is present also for downside risks, that also matter in terms of reaching pricing stability. The results of this dissertation provide an inflation at risk perspective on questions of optimality of the single currency area, putting into question aspects such as feasibility of the mandate and benefits of a single monetary policy, in an area characterised by latent structural differences that give rise to fundamental heterogeneities in inflation risk.
I study Inflation at Risk for four euro area countries: Italy, Germany, France and Spain. I model a simple Phillips’ curve relation and estimate a series of two-steps quantile regressions, at different forecasting horizons. I create two measures of upside risk: expected longrise and upside relative entropy, that correlate across countries to different degrees. The fitting of a theoretical distribution allows me to study the moments of the distribution of the Phillips curve; this yields interesting findings for both inflation at risk and uncertainty literatures. I run a SVAR to assess the effects of central bank information (CBI) shocks on these risk measures, as well as other economic variables, comparing the IRFs across countries. CBI shocks cause an increase in interbank lending rates. In all countries except Germany, inflation responds positively, unemployment negatively and expected longrise increases. Germany is insulated from the effects of CBI shocks, in the sense that its IRFs are not statistically significant. Upside relative entropy responds heterogeneously across countries. An extension that accounts for financial conditions shows that this heterogeneity is present also for downside risks, that also matter in terms of reaching pricing stability. The results of this dissertation provide an inflation at risk perspective on questions of optimality of the single currency area, putting into question aspects such as feasibility of the mandate and benefits of a single monetary policy, in an area characterised by latent structural differences that give rise to fundamental heterogeneities in inflation risk.
Inflation-at-risk in the euro area
GIRELLI, MATTEO
2023/2024
Abstract
I study Inflation at Risk for four euro area countries: Italy, Germany, France and Spain. I model a simple Phillips’ curve relation and estimate a series of two-steps quantile regressions, at different forecasting horizons. I create two measures of upside risk: expected longrise and upside relative entropy, that correlate across countries to different degrees. The fitting of a theoretical distribution allows me to study the moments of the distribution of the Phillips curve; this yields interesting findings for both inflation at risk and uncertainty literatures. I run a SVAR to assess the effects of central bank information (CBI) shocks on these risk measures, as well as other economic variables, comparing the IRFs across countries. CBI shocks cause an increase in interbank lending rates. In all countries except Germany, inflation responds positively, unemployment negatively and expected longrise increases. Germany is insulated from the effects of CBI shocks, in the sense that its IRFs are not statistically significant. Upside relative entropy responds heterogeneously across countries. An extension that accounts for financial conditions shows that this heterogeneity is present also for downside risks, that also matter in terms of reaching pricing stability. The results of this dissertation provide an inflation at risk perspective on questions of optimality of the single currency area, putting into question aspects such as feasibility of the mandate and benefits of a single monetary policy, in an area characterised by latent structural differences that give rise to fundamental heterogeneities in inflation risk.File | Dimensione | Formato | |
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https://hdl.handle.net/20.500.12608/68243