Modeling and forecasting macroeconomic downside risk
Davide Delle Monache (),
Andrea De Polis () and
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Andrea De Polis: Univeristy of Warwick
No 1324, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area
We document a substantial increase in downside risk to US economic growth over the last 30 years. By modelling secular trends and cyclical changes of the predictive density of GDP growth, we find an accelerating decline in the skewness of the conditional distributions, with significant, procyclical variations. Decreasing trend-skewness, which turned negative in the aftermath of the Great Recession, is associated with the long-run growth slowdown started in the early 2000s. Short-run skewness fluctuations imply negatively skewed predictive densities ahead of and during recessions, often anticipated by deteriorating financial conditions, while positively skewed distributions characterize expansions. The model delivers competitive out-of-sample (point, density and tail) forecasts, improving upon standard benchmarks, due to the strong signals of increasing downside risk provided by current financial conditions.
Keywords: business cycle; financial conditions; downside risk; skewness; score driven models. (search for similar items in EconPapers)
JEL-codes: C12 C22 C51 C53 E37 E44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fdg, nep-for, nep-mac and nep-rmg
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Working Paper: Modeling and Forecasting Macroeconomic Downside Risk (2022)
Working Paper: Modelling and Forecasting Macroeconomic Downside Risk (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1324_21
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