Structural drivers of growth at risk: insights from a VAR-quantile regression approach

Giacomo Carboni, Luís Fonseca, Fabio Fornari and Leonardo Urrutia

No 3171, Working Paper Series from European Central Bank

Abstract: We investigate the impact of structural shocks on the joint distribution of future real GDP growth and inflation in the euro area. We model the conditional mean of these variables, along with selected financial indicators, using a VAR and perform quantile regressions on the VAR residuals to estimate their time-varying variance as a function of macroeconomic and financial variables. Through impulse response analysis, we find that demand and financial shocks reduce expected GDP growth and increase its conditional variance, leading to negatively skewed future growth distributions. By enabling this mean-volatility interaction, demand and financial shocks drive significant time variation in downside risk to euro area GDP growth, while supply shocks result in broadly symmetric movements. For inflation, supply shocks drive instead a positive mean-volatility co-movement, where higher inflation is associated with increased uncertainty, causing time variation in upside risk. JEL Classification: C32, C58, E32, G17

Keywords: downside risk; euro area; mean-variance correlation; quantile regressions; stochastic volatility; structural shocks; tail risk; vector autoregression (VAR) (search for similar items in EconPapers)
Date: 2026-01
Note: 1131345
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20263171

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