Assessing Macroeconomic Tail Risk

22 Pages Posted: 19 Apr 2019 Last revised: 30 May 2019

See all articles by Francesca Loria

Francesca Loria

Board of Governors of the Federal Reserve System; European University Institute

Christian Matthes

Federal Reserve Bank of Richmond

Donghai Zhang

Institute for Macroeconomics and Econometrics - University of Bonn

Multiple version iconThere are 2 versions of this paper

Date Written: 2019-04-19

Abstract

What drives macroeconomic tail risk? To answer this question, we borrow a definition of macroeconomic risk from Adrian et al. (2019) by studying (left-tail) percentiles of the forecast distribution of GDP growth. We use local projections (Jordà, 2005) to assess how this measure of risk moves in response to economic shocks to the level of technology, monetary policy, and financial conditions. Furthermore, by studying various percentiles jointly, we study how the overall economic outlook - as characterized by the entire forecast distribution of GDP growth - shifts in response to shocks. We find that contractionary shocks disproportionately increase downside risk, independently of what shock we look at.

Keywords: macroeconomic risk, shocks, local projections

JEL Classification: C21, C53, E17, E37

Suggested Citation

Loria, Francesca and Matthes, Christian and Zhang, Donghai, Assessing Macroeconomic Tail Risk (2019-04-19). FRB Richmond Working Paper No. 19-10. Available at SSRN: https://ssrn.com/abstract=3375006

Francesca Loria (Contact Author)

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

European University Institute ( email )

Villa Schifanoia
133 via Bocaccio
Firenze (Florence), Tuscany 50014
Italy

Christian Matthes

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Donghai Zhang

Institute for Macroeconomics and Econometrics - University of Bonn ( email )

Bonn
Germany

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