Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322039 
Year of Publication: 
2025
Series/Report no.: 
ECB Working Paper No. 3028
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We document that inflation risk in the U.S. varies significantly over time and is often asymmetric. To analyze the 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.
Subjects: 
Asymmetric risks
optimal monetary policy
balance of inflation risks
risk-adjusted inflation targeting
flexible average inflation targeting
JEL: 
E52
E31
C53
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-7121-8
Document Type: 
Working Paper

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