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The impact of financial shocks on the forecast distribution of output and inflation

Mario Forni, Luca Gambetti, Nicolò Maffei-Faccioli and Luca Sala

No 2023/3, Working Paper from Norges Bank

Abstract: Financial shocks represent a major driver of fluctuations in tail risk, defined as the 5th percentile of the forecast distributions of output and inflation. Since the variance and the asymmetry of the forecast distributions are largely driven by the left tail, financial shocks turn out to play a prominent role for distribution dynamics. Monetary policy shocks also play a role in shaping risk, although its effects are smaller than those of financial shocks. These findings are obtained using a novel econometric approach which combines quantile regressions and Structural VARs.

Keywords: Tail Risk; Uncertainty; Skewness; Forecast Distribution; SVAR; Financial shocks; Monetary Policy Shocks; Quantile Regressions (search for similar items in EconPapers)
JEL-codes: C32 E32 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2023-03
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-fdg, nep-mon and nep-rmg
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