Uncertainty, Skewness and the Business Cycle - Through the MIDAS Lens

Efrem Castelnuovo and Lorenzo Mori

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We employ a mixed-frequency quantile regression approach to model the time-varying conditional distribution of the US real GDP growth rate. We show that monthly information on the US financial cycle improves the predictive power of an otherwise quarterly-only model. We combine selected quantiles of the estimated conditional distribution to produce measures of uncertainty and skewness. Embedding these measures in a VAR framework, we show that unexpected changes in uncertainty are associated with an increase in (left) skewness and a downturn in real activity. Empirical findings related to VAR impulse responses and forecast error variance decomposition are shown to depend on the inclusion/omission of monthly-level information on financial conditions when estimating real GDP growth’s conditional density. Effects are significantly downplayed if we consider a quarterly-only quantile regression model. A counterfactual simulation conducted by shutting down the endogenous response of skewness to uncertainty shocks shows that skewness substantially amplifies the recessionary effects of uncertainty.

Keywords: Uncertainty; skewness; quantile regressions; VARs; MIDAS (search for similar items in EconPapers)
JEL-codes: C32 E32 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2022-10
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Uncertainty, Skewness, and the Business Cycle through the MIDAS Lens (2022)
Working Paper: Uncertainty, Skewness, and the Business Cycle Through the MIDAS Lens (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2022-69

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