Financial conditions, business cycle fluctuations and growth-at-risk

Andrea Falconio and Simone Manganelli

Journal of Economic Dynamics and Control, 2025, vol. 176, issue C

Abstract: We augment a quantile vector autoregressive model with the interquartile range of economic growth, a robust proxy for volatility, to assess the relative importance of financial conditions and economic risk in affecting the business cycle. We find that economic risk displays an asymmetric effect on economic growth distribution, very much similar to financial conditions: they substantially increase growth-at-risk, but have limited impact on upside potential. We also document that the asymmetric impact of economic risk depends on the state of the economy and is substantially amplified in times of high economic risk, while remaining subdued in tranquil times.

Keywords: Economic risk; Financial conditions; Quantile regression (search for similar items in EconPapers)
JEL-codes: C32 C53 E32 E44 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:176:y:2025:i:c:s0165188925000752

DOI: 10.1016/j.jedc.2025.105109

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