Measuring Macroeconomic Tail Risk

This paper estimates consumption and GDP tail risk dynamics over the long run (1900{ 2020). Our predictive approach circumvents the scarcity of large macroeconomic crises by exploiting a rich information set covering 42 countries. This exible approach does not require asset price information and can thus serve as a benchmark to evaluate the empirical validity of rare disasters models. Our estimates covary with asset prices and forecast future stock returns, in line with theory. A calibration disciplined by our estimates supports the prediction that macroeconomic tail risk drives the equity premium.