Financial conditions, macroeconomic uncertainty, and macroeconomic tail risks

Yu-Fan Huang, Wenting Liao, Sui Luo and Jun Ma

Journal of Economic Dynamics and Control, 2024, vol. 163, issue C

Abstract: This paper investigates how financial conditions and macroeconomic uncertainty jointly affect macroeconomic tail risks. We first document that tight financial conditions decrease all conditional quantiles of future output growth in the near term, while high macroeconomic uncertainty only stretches the interquartile range. Because financial conditions and uncertainty comove substantially, the conditional means and variances shift simultaneously in the opposite direction. Consequently, the downside risk varies much more than the upside risk. A quantile impulse response analysis indicates that both financial and uncertainty shocks are responsible for the asymmetric behaviors in the downside and upside risks.

Keywords: Financial conditions; Uncertainty; Macroeconomic tail risks (search for similar items in EconPapers)
JEL-codes: C32 E32 E44 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:163:y:2024:i:c:s0165188924000630

DOI: 10.1016/j.jedc.2024.104871

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