Quantile Impulse Response Analysis with Applications in Macroeconomics and Finance

Abstract

This paper studies the dynamic responses of the conditional quantiles and their applications in macroeconomics and finance. We build a multi-equation autoregressive conditional quantile model and propose a new construction of quantile impulse response functions (QIRFs). The tool set of QIRFs provides detailed distributional evolution of an outcome variable to economic shocks. We show the left tail of economic activity is the most responsive to monetary policy and financial shocks. The impacts of the shocks on Growth-at-Risk (the 5% quantile of economic activity) during the global financial crisis are assessed. We also examine how the economy responds to a hypothetical financial distress scenario.

Keywords: Quantile Impulse Response, Growth-at-Risk, Monetary Policy, Financial Shocks

JEL Classification: C22