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Reassessing growth vulnerability

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  • Dooyeon Cho
  • Seunghwa Rho

Abstract

This paper replicates the results of Adrian et al. (American Economic Review, 2019) that GDP growth volatility is mainly driven by the lower quantiles of the distribution which is predicted by the financial condition. It extends their study by estimating the model with the IVX‐QR estimator of Lee (Journal of Econometrics, 2016) and double weighted estimator of Cai et al. (Journal of Econometrics, 2022) considering that the financial condition index is highly serially correlated. Both models are estimated with the smoothed estimating equation approach of Kaplan and Sun (Econometric Theory, 2017). The results show that the findings of Adrian et al. (American Economic Review, 2019) are robust to possible bias due to the existence of persistent predictors. The out‐of‐sample forecasting exercises suggest that methods that are robust to the existence of persistent predictors can improve forecasting performance at the lower quantiles of the GDP growth distribution.

Suggested Citation

  • Dooyeon Cho & Seunghwa Rho, 2024. "Reassessing growth vulnerability," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 39(1), pages 225-234, January.
    • Handle: RePEc:wly:japmet:v:39:y:2024:i:1:p:225-234
    DOI: 10.1002/jae.3005
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    References listed on IDEAS

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    1. Cheung, Yin-Wong & Lai, Kon S, 1995. "Lag Order and Critical Values of a Modified Dickey-Fuller Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(3), pages 411-419, August.
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    3. Cho, Dooyeon, 2021. "On the predictability of the distribution of excess returns in currency markets," International Journal of Forecasting, Elsevier, vol. 37(2), pages 511-530.
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