Skewed SVARs: Tracking the Structural Sources of Macroeconomic Tail Risks

43 Pages Posted: 21 Mar 2022

See all articles by Carlos Montes-Galdón

Carlos Montes-Galdón

European Central Bank

Eva Ortega

Bank of Spain, DG Economics, Statistics and Research

Date Written: March 17, 2022

Abstract

This paper proposes a vector autoregressive model with structural shocks (SVAR) that are identified using sign restrictions and whose distribution is subject to time-varying skewness. It also presents an efficient Bayesian algorithm to estimate the model. The model allows for the joint tracking of asymmetric risks to macroeconomic variables included in the SVAR. It also provides a narrative about the structural reasons for the changes over time in those risks. Using euro area data, our estimation suggests that there has been a significant variation in the skewness of demand, supply and monetary policy shocks between 1999 and 2019. This variation lies behind a significant proportion of the joint dynamics of real GDP growth and inflation in the euro area over this period, and also generates important asymmetric tail risks in these macroeconomic variables. Finally, compared to the literature on growth- and inflation-at-risk, we found that financial stress indicators do not suffice to explain all the macroeconomic tail risks.

Keywords: Bayesian SVAR, skewness, growth-at-risk, inflation-at-risk

JEL Classification: C11, C32, C51, E31, E32

Suggested Citation

Montes-Galdón, Carlos and Ortega, Eva, Skewed SVARs: Tracking the Structural Sources of Macroeconomic Tail Risks (March 17, 2022). Banco de Espana Working Paper No. 2208, Available at SSRN: https://ssrn.com/abstract=4060167 or http://dx.doi.org/10.2139/ssrn.4060167

Carlos Montes-Galdón

European Central Bank ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Eva Ortega (Contact Author)

Bank of Spain, DG Economics, Statistics and Research ( email )

Alcala 50
Madrid, 28014
Spain

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