The Term Structure of Growth-at-Risk

Tobias Adrian, Federico Grinberg, Nellie Liang, Sheheryar Malik and Jie Yu

American Economic Journal: Macroeconomics, 2022, vol. 14, issue 3, 283-323

Abstract: We show that the conditional distribution of forecasted GDP growth depends on financial conditions in a panel of 11 advanced economies. Financial conditions have a larger effect on the lower fifth percentile of conditional growth—which we call growth-at-risk (GaR)—than the median. In addition, the term structure of GaR reflects that when initial financial conditions are loose, downside risks are lower in the near term but increase in later quarters. This intertemporal trade-off for loose financial conditions is amplified when credit-to-GDP growth is rapid. Using granular instrumental variables, we also provide evidence that the relationship from loose financial conditions to future downside risks is causal. Our results suggest that models of macrofinancial linkages should incorporate the endogeneity of higher-order moments to systematically account for downside risks to growth in the medium run.

JEL-codes: E23 E27 E32 E44 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (38)

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Related works:
Working Paper: The Term Structure of Growth-at-Risk (2018)
Working Paper: The Term Structure of Growth-at-Risk (2018)
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DOI: 10.1257/mac.20180428

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