56 Pages Posted: 30 Sep 2016 Last revised: 15 Nov 2017
Date Written: 2016-09-29
We study the conditional distribution of GDP growth as a function of economic and financial conditions. Deteriorating financial conditions are associated with an increase in the conditional volatility and a decline in the conditional mean of GDP growth, leading the lower quantiles of GDP growth to vary with financial conditions and the upper quantiles to be stable over time: Upside risks to GDP growth are low in most periods while downside risks increase as financial conditions become tighter. We argue that amplification mechanisms in the financial sector generate the observed growth vulnerability dynamics.
Keywords: Downside risk, entropy, quantile regressions
JEL Classification: C22, E17, E37
Suggested Citation: Suggested Citation