Foreign Vulnerabilities, Domestic Risks: The Global Drivers of GDP-at-Risk
Simon Lloyd,
Ed Manuel and
Konstantin Panchev ()
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Konstantin Panchev: University of Oxford
IMF Economic Review, 2024, vol. 72, issue 1, No 9, 335-392
Abstract:
Abstract We study how foreign financial developments influence the conditional distribution of domestic GDP growth. We propose a method to account for foreign vulnerabilities using bilateral-exposure weights when assessing downside macroeconomic risks within quantile regressions. For an advanced-economy panel, we show that tighter foreign financial conditions and faster foreign credit-to-GDP growth are associated with a more severe left-tail of domestic GDP growth, even controlling for domestic indicators. Incorporating foreign variables improves estimates of domestic GDP-at-Risk, both in and out of sample. Decomposing GDP-at-Risk into domestic and foreign origins, we show that foreign shocks are a key driver of domestic macroeconomic tail risks.
JEL-codes: E44 E58 F30 F41 F44 G01 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Foreign vulnerabilities, domestic risks: the global drivers of GDP-at-Risk (2021)
Working Paper: Foreign Vulnerabilities, Domestic Risks: The Global Drivers of GDP-at-Risk (2021)
Working Paper: Foreign Vulnerabilities, Domestic Risks: The Global Drivers of GDP-at-Risk (2021)
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DOI: 10.1057/s41308-023-00199-7
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