Growth at Risk and Uncertainty: Evidence from Mexico

We analyze the relationship between uncertainty and economic growth expectations in Mexico through the Growth at Risk methodology. Our analysis consists of two stages: first, we estimate a quantile regression of annual output growth conditional on lagged values of a measure of macroeconomic uncertainty and other drivers. Second, based on the fitted values of the quantile regression, we estimate the parameters of a t-skewed distribution of expected economic growth. Our results show that an increase in macroeconomic uncertainty has a negative and statistically significant impact on the left tail of the growth distribution, leading to an increased probability of observing lower growth rates. These results remain robust to alternative measures of financial conditions, of economic policy uncertainty, and of risk exposure, as well as to alternative measurements of economic activity.