Model-Based Globally-Consistent Risk Assessment
29 Pages Posted: 10 Jun 2020
Date Written: May 2020
This paper outlines an approach to assess uncertainty around a forecast baseline as well as the impact of alternative policy rules on macro variability. The approach allows for non-Gaussian shock distributions and non-linear underlying macroeconomic models. Consequently, the resulting distributions for macroeconomic variables can exhibit skewness and fat tails. Several applications are presented that illustrate the practical implementation of the technique including confidence bands around a baseline forecast, the probabilities of global growth falling below a specified threshold, and the impact of alternative fiscal policy reactions functions on macro variability.
Keywords: Economic models, Economic policy, Business cycles, Monetary policy, Fiscal policy, DSGE models, predictive density, nonlinear, non-Gaussian, skew, fat tails, WP, economic shock, policy space, ELB, nominal interest rate, risk assessment
JEL Classification: C60, E3, E52, E62, E01, E31, E32
Suggested Citation: Suggested Citation