Bangkok, 16 December 2017 Rubric Policymakers need to look beyond - - PowerPoint PPT Presentation

Central banks as risk managers

Bangkok, 16 December 2017 Benoît Cœuré

Member of the Executive Board European Central Bank

ECB-PUBLIC

Rubric

www.ecb.europa.eu

HICP: forecasts and realised (percent per annum)

Sources: ECB and Eurostat.

• 1.0

0.0 1.0 2.0 3.0

• 1.0

0.0 1.0 2.0 3.0 2012 2013 2014 2015 2016 2017 2018 2019 Sep 13 MPE Jun 14 BMPE Dec 14 BMPE Dec 15 BMPE Mar 17 MPE Jun 17 BMPE Sep 17 BMPE Dec 16 BMPE HICP inflation

Policymakers need to look beyond central forecasts

Rubric

www.ecb.europa.eu

Option implied probability density function

• f euro area inflation over the next 5 years

(% probability)

Sources: Bloomberg, Reuters, and ECB calculations. Note: Density functions are computed from 5-year maturity zero-coupon inflation option floors under the assumption of risk neutrality. These “risk neutral” density functions may differ significantly from physical (or "true") probability distributions.

• 3.0
• 2.5
• 2.0
• 1.5
• 1.0
• 0.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0 30-Jun-14 22-Jan-15 06-Dec-17

Distribution of risks widened throughout 2014 to encompass outright deflation

Rubric

www.ecb.europa.eu

Dow Jones EURO STOXX 50 Volatility Index (index)

Source: Bloomberg. 10 20 30 40 50 60 70 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Sovereign debt crisis Brexit

Periods of elevated uncertainty may signal risks to economic activity