Citation: Hilscher, Jens, Alon Raviv, and Ricardo Reis (2022) "How Likely is an Inflation Disaster?" CEPR discussion paper 17244, April. bibtex
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Main estimates high inflation - USProbabilities of a high inflation disaster in the United States:
-- "inflation >4% on average" is inflation in five years for five years (e.g. from 2027 to 2032) above 4%. This is a larger than 10 log-point deviation from the 2% target. -- "inflation >5% on average" is inflation in five years for five years (e.g. from 2027 to 2032) above 5%. This is a larger than 15 log-point deviation from the 2% target. These probabilities are perceived by market participants, as reflected in the cost of insurance against these events by buying options. Source: Hilscher, Raviv and Reis (2022) |
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Main estimates high inflation - EZ Probabilities of a high inflation disaster in the Eurozone:
-- "inflation >4% on average" is inflation in five years for five years (e.g. from 2027 to 2032) above 4%. This is a larger than 10 log-point deviation from the 2% target. -- "inflation >5% on average" is inflation in five years for five years (e.g. from 2027 to 2032) above 5%. This is a larger than 15 log-point deviation from the 2% target. These probabilities are perceived by market participants, as reflected in the cost of insurance against these events by buying options. Source: Hilscher, Raviv and Reis (2022) |
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Main estimates deflation - USProbabilities of a low inflation disaster in the United States:
-- "inflation <4% on average" is inflation in five years for five years (e.g. from 2027 to 2032) below 0%. This is a larger than 10 log-point deviation from the 2% target. -- "inflation <-1 on average" is inflation in five years for five years (e.g. from 2027 to 2032) below -1%. This is a larger than 15 log-point deviation from the 2% target. These probabilities are perceived by market participants, as reflected in the cost of insurance against these events by buying options. Source: Hilscher, Raviv and Reis (2022) |
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Main estimates deflation - EZProbabilities of a low inflation disaster in the Eurozone:
-- "inflation <4% on average" is inflation in five years for five years (e.g. from 2027 to 2032) below 0%. This is a larger than 10 log-point deviation from the 2% target. -- "inflation <-1 on average" is inflation in five years for five years (e.g. from 2027 to 2032) below -1%. This is a larger than 15 log-point deviation from the 2% target. These probabilities are perceived by market participants, as reflected in the cost of insurance against these events by buying options. Source: Hilscher, Raviv and Reis (2022) |
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Without horizon adjustment - US and EZProbabilities of a high inflation disaster in the United States and the EZ:
-- "inflation >4% on average" is inflation over next five years (e.g. from 2022 to 2027) above 4%. This is a larger than 10 log-point deviation from the 2% target. -- Without horizon adjustment, so including near-term years. These probabilities are perceived by market participants, as reflected in the cost of insurance against these events by buying options. Source: Hilscher, Raviv and Reis (2022) |
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Without horizon or risk adjustment - USRisk-neutral probability densities of inflation in the United States:
-- horizon is average over next 10 years (e.g. from 2022 to 2032) -- Without horizon adjustment, so including near-term years, and without risk adjustment, so there would only coincide with actual probabilities if investors were risk neutral. These probabilities are perceived by market participants, as reflected in the cost of insurance against these events by buying options. Source: Hilscher, Raviv and Reis (2022) |
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Without horizon or risk adjustment - EZRisk-neutral probability densities of inflation in the Eurozone:
-- horizon is average over next 10 years (e.g. from 2022 to 2032) -- Without horizon adjustment, so including near-term years, and without risk adjustment, so there would only coincide with actual probabilities if investors were risk neutral. These probabilities are perceived by market participants, as reflected in the cost of insurance against these events by buying options. Source: Hilscher, Raviv and Reis (2022) |
Datasets, from January 2011 until the present
Data series on disaster probabilities: United States and Eurozone