Inflation at risk

Inflation at risk (IaR) refers to the tails of the distribution of inflation over a forecast horizon. We study IaR using quantile regressions in a panel of OECD countries for a sample that includes the Global Financial Crisis and the rise in inflation during the Covid-19 pandemic. First, we find that even though recently the conditional mean of inflation has been low and stable, there was ample variability in the tails. Second, financial conditions have a nonlinear effect on the predictive inflation distribution. Third, the role of economic drivers of IaR has changed over time. Our approach to measure tails complements others using financial market quotes and survey data.