Endogenous Macro-Financial Risk

Tobias Adrian, Radu-Gabriel Cristea, Max-Sebastian Dovi-Marx, Fernando Duarte and Domenico Giannone

No 22153, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We uncover two distinct sources of macro-financial fluctuations. Macro shocks move the conditional mean of GDP growth, but not its variance. Financial shocks persistently tighten financial conditions, lower GDP growth, and increase risk endogenously. The shocks' contrasting effects on second moments allow identification in a structural VAR that simultaneously forecasts growth and risk using lagged endogenous variables. Risk builds up gradually, but its onset is detected early through a rise in Growth-at-Risk, when surprisingly low growth coincides with elevated financial stress.

Keywords: Macro-finance; Endogenous risk; Identification; Structural var; Growth-at-Risk (search for similar items in EconPapers)
JEL-codes: C32 C58 E32 E44 (search for similar items in EconPapers)
Date: 2026-11
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