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The Term Structure of Growth-at-Risk

Author

Listed:
  • Tobias Adrian
  • Federico Grinberg
  • Nellie Liang
  • Sheheryar Malik
  • Jie Yu

Abstract

We show that the conditional distribution of forecasted GDP growth depends on financial conditions in a panel of 11 advanced economies. Financial conditions have a larger effect on the lower fifth percentile of conditional growth—which we call growth-at-risk (GaR)—than the median. In addition, the term structure of GaR reflects that when initial financial conditions are loose, downside risks are lower in the near term but increase in later quarters. This intertemporal trade-off for loose financial conditions is amplified when credit-to-GDP growth is rapid. Using granular instrumental variables, we also provide evidence that the relationship from loose financial conditions to future downside risks is causal. Our results suggest that models of macrofinancial linkages should incorporate the endogeneity of higher-order moments to systematically account for downside risks to growth in the medium run.

Suggested Citation

  • Tobias Adrian & Federico Grinberg & Nellie Liang & Sheheryar Malik & Jie Yu, 2022. "The Term Structure of Growth-at-Risk," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(3), pages 283-323, July.
    • Handle: RePEc:aea:aejmac:v:14:y:2022:i:3:p:283-323
    DOI: 10.1257/mac.20180428
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    2. Zhiguo He & Arvind Krishnamurthy, 2019. "A Macroeconomic Framework for Quantifying Systemic Risk," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(4), pages 1-37, October.
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    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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