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Assessing Asymmetric Macroeconomic Risk

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  • Stéphane Lhuissier

Abstract

I propose a dynamic factor model with time-varying skewness to assess asymmetric risk around the economic outlook across a set of macroeconomic aggregates. Applied to U.S. data, the model shows that macroeconomic skewness is procyclical, displays significant independent variations from GDP growth skewness, and does not require conditioning on financial variables to manifest. Compared to univariate benchmarks, the model improves the detection of downside risk to growth and delivers more accurate predictive distributions, especially during downturns. These findings underscore the value of using a richer information set to quantify the balance of macroeconomic risks.

Suggested Citation

  • Stéphane Lhuissier, 2025. "Assessing Asymmetric Macroeconomic Risk," Working papers 1004, Banque de France.
    • Handle: RePEc:bfr:banfra:1004
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    File URL: https://www.banque-france.fr/system/files/2025-07/WP1004_0.pdf
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    References listed on IDEAS

    as
    1. Timmermann, Allan, 2000. "Moments of Markov switching models," Journal of Econometrics, Elsevier, vol. 96(1), pages 75-111, May.
    2. Lhuissier, Stéphane, 2022. "Financial conditions and macroeconomic downside risks in the euro area," European Economic Review, Elsevier, vol. 143(C).
    3. Perez-Quiros, Gabriel & Timmermann, Allan, 2001. "Business cycle asymmetries in stock returns: Evidence from higher order moments and conditional densities," Journal of Econometrics, Elsevier, vol. 103(1-2), pages 259-306, July.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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