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The impact of uncertainty on economic tail risk: bank capital as mitigating factor

Author

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  • Goosen, Kasper
  • de Vette, Nander
  • Willem van den End, Jan

Abstract

We use a Growth-at-Risk (GaR) model to estimate the impact of elevated uncertainty on tail risks in the economy and financial system. Based on a composite measure of uncertainty, we identify the transmission channels and estimate the impact of uncertainty on the economy and the financial system. Outcomes for the Netherlands and other advanced economies show that an increase of uncertainty negatively affects the lower tail outcome of GDP growth. We find that a sufficiently well-capitalized banking sector reduces this downside risk, by mitigating the amplification effects of uncertainty and the adverse economic tail outcomes.

Suggested Citation

  • Goosen, Kasper & de Vette, Nander & Willem van den End, Jan, 2026. "The impact of uncertainty on economic tail risk: bank capital as mitigating factor," Economic Analysis and Policy, Elsevier, vol. 91(C), pages 1469-1485.
    • Handle: RePEc:eee:ecanpo:v:91:y:2026:i:c:p:1469-1485
    DOI: 10.1016/j.eap.2026.05.001
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    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • 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
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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