Systemic Risk Measures and Macroeconomy Forecasting: Based on FQGLS Estimation with Structural Break

Guojin Chen, Yanzhen Liu and Yu Zhang

Emerging Markets Finance and Trade, 2022, vol. 58, issue 2, 584-600

Abstract: In this article, we study the forecasting power of 12 different systemic risk measures on the macroeconomic shocks in China. We employ the FQGLS estimation with structural break. The violation of classical assumptions is detected, and the significant difference between OLS and FQGLS estimations further highlights the importance of model specification. The combined forecasts significantly outperform the historical mean in out-of-sample predictions, although most of the individual forecasts cannot. That is, the macroeconomic shock is predictable by the systemic risk measures, but the noise overwhelms the signal coming from real systemic risk.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:58:y:2022:i:2:p:584-600

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DOI: 10.1080/1540496X.2020.1807323

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