Forecasting Macroeconomic Risk in Real Time: Great and Covid-19 Recessions

53 Pages Posted: 2 Jul 2020

See all articles by Roberto A. De Santis

Roberto A. De Santis

European Central Bank (ECB) - Directorate General Economics

Wouter Van der Veken

Ghent University - Department of Economics

Date Written: July, 2020

Abstract

We show that financial variables contribute to the forecast of GDP growth during the Great Recession, providing additional insights on both first and higher moments of the GDP growth distribution. If a recession is due to an unforeseen shock (such as the Covid-19 recession), financial variables serve policymakers in providing timely warnings about the severity of the crisis and the macroeconomic risk involved, because downside risks increase as financial stress and corporate spreads become tighter. We use quantile regression and the skewed t-distribution and evaluate the forecasting properties of models using out-of-sample metrics with real-time vintages.

JEL Classification: C53, E23, E27, E32, E44

Suggested Citation

De Santis, Roberto A. and Van der Veken, Wouter, Forecasting Macroeconomic Risk in Real Time: Great and Covid-19 Recessions (July, 2020). ECB Working Paper No. 20202436, Available at SSRN: https://ssrn.com/abstract=3641428

Roberto A. De Santis (Contact Author)

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Wouter Van der Veken

Ghent University - Department of Economics ( email )

Belgium

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