Model-Based Globally-Consistent Risk Assessment

Michal Andrle and Benjamin Hunt

No 2020/064, IMF Working Papers from International Monetary Fund

Abstract: This paper outlines an approach to assess uncertainty around a forecast baseline as well as the impact of alternative policy rules on macro variability. The approach allows for non-Gaussian shock distributions and non-linear underlying macroeconomic models. Consequently, the resulting distributions for macroeconomic variables can exhibit skewness and fat tails. Several applications are presented that illustrate the practical implementation of the technique including confidence bands around a baseline forecast, the probabilities of global growth falling below a specified threshold, and the impact of alternative fiscal policy reactions functions on macro variability.

Keywords: WP; distribution; shock distribution; monetary policy; normal distribution; DSGE models; predictive density; nonlinear; non-Gaussian; skew; fat tails; predictive distribution; distribution change; DSGE model; model dynamics; fiscal policy rule; output growth distribution; economic policy; risk assessment; growth distribution; output distribution; distribution of shock; Interest rate floor; Production growth; Zero lower bound; Global; headline inflation (search for similar items in EconPapers)
Pages: 28
Date: 2020-05-22
New Economics Papers: this item is included in nep-mac and nep-rmg
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Citations: View citations in EconPapers (3)

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