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The Term Structure of Growth-at-Risk

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  • Adrian, Tobias
  • Grinberg, Federico
  • Liang, Nellie
  • Malik, Sheherya

Abstract

Using panel quantile regressions, we show that the conditional distribution of GDP growth depends on financial conditions, with growth-at-risk (GaR)-defined as conditional growth at the lower 5th percentile-more responsive than the median or upper percentiles. The term structure of GaR features an intertemporal tradeoff: GaR is higher in the short run but lower in the medium run when initial financial conditions are loose relative to typical levels. This shift in the growth distribution generally is not incorporated when solving dynamic stochastic general equilibrium models with macrofinancial linkages, which suggests downside risks to GDP growth are systematically underestimated.

Suggested Citation

  • Adrian, Tobias & Grinberg, Federico & Liang, Nellie & Malik, Sheherya, 2018. "The Term Structure of Growth-at-Risk," CEPR Discussion Papers 13349, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:13349
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    References listed on IDEAS

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    9. Robin Greenwood & Samuel G. Hanson, 2013. "Issuer Quality and Corporate Bond Returns," Review of Financial Studies, Society for Financial Studies, vol. 26(6), pages 1483-1525.
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    12. Adrian, Tobias & Duarte, Fernando & Grinberg, Federico & Mancini-Griffoli, Tommaso, 2018. "Monetary Policy and Financial Conditions: A Cross-Country Study," CEPR Discussion Papers 12681, C.E.P.R. Discussion Papers.
    13. Frantisek Cech & Jozef Barunik, 2017. "Measurement of Common Risk Factors: A Panel Quantile Regression Model for Returns," Working Papers IES 2017/20, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2017.
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    Cited by:

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    2. Andrew Filardo & Marco Jacopo Lombardi & Marek Raczko, 2018. "Measuring financial cycle time," BIS Working Papers 755, Bank for International Settlements.
    3. Claudio Borio & Mathias Drehmann & Dora Xia, 2018. "The financial cycle and recession risk," BIS Quarterly Review, Bank for International Settlements, December.
    4. Signe Krogstrup & William Oman, 2019. "Macroeconomic and Financial Policies for Climate Change Mitigation: A Review of the Literature," IMF Working Papers 2019/185, International Monetary Fund.
    5. Eguren-Martin, Fernando & O'Neill, Cian & Sokol, Andrej & von dem Berge, Lukas, 2020. "Capital flows-at-risk: push, pull and the role of policy," Bank of England working papers 881, Bank of England.
    6. Arrigoni, Simone & Bobasu, Alina & Venditti, Fabrizio, 2020. "The simpler the better: measuring financial conditions for monetary policy and financial stability," Working Paper Series 2451, European Central Bank.
    7. Borio, Claudio & Drehmann, Mathias & Xia, Fan Dora, 2020. "Forecasting recessions: the importance of the financial cycle," Journal of Macroeconomics, Elsevier, vol. 66(C).
    8. Eguren-Martin, Fernando & Sokol, Andrej, 2019. "Attention to the tail(s): global financial conditions and exchange rate risks," Bank of England working papers 822, Bank of England.
    9. Hauptmeier, Sebastian & Holm-Hadulla, Fédéric & Nikalexi, Katerina, 2020. "Monetary policy and regional inequality," Working Paper Series 2385, European Central Bank.
    10. Kiss, Tamás & Mazur, Stepan & Nguyen, Hoang & Österholm, Pär, 2021. "Modelling the Relation between the US Real Economy and the Corporate Bond-Yield Spread in Bayesian VARs with non-Gaussian Disturbances," Working Papers 2021:9, Örebro University, School of Business.
    11. Brownlees, Christian & Souza, André B.M., 2021. "Backtesting global Growth-at-Risk," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 312-330.
    12. Helena Chuliá & Ignacio Garrón & Jorge M. Uribe, 2021. ""Vulnerable Funding in the Global Economy"," IREA Working Papers 202106, University of Barcelona, Research Institute of Applied Economics, revised Mar 2021.
    13. Michael T. Kiley, 2018. "Unemployment Risk," Finance and Economics Discussion Series 2018-067, Board of Governors of the Federal Reserve System (U.S.).

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