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The Impact of Financial Shocks on the Forecast Distribution of Output and Inflation

Author

Listed:
  • Forni, Mario
  • Gambetti, Luca
  • Maffei Faccioli, Nicolò
  • Sala, Luca

Abstract

Financial shocks represent a major driver of fluctuations in tail risk, defined as the 5th percentile of the forecast distributions of output and inflation. Since the variance and the asymmetry of the forecast distributions are largely driven by the left tail, financial shocks turn out to play a prominent role for distribution dynamics. Monetary policy shocks also play a role in shaping risk, although its effects are smaller than those of financial shocks. These findings are obtained using a novel econometric approach which combines quantile regressions and Structural VARs.

Suggested Citation

  • Forni, Mario & Gambetti, Luca & Maffei Faccioli, Nicolò & Sala, Luca, 2023. "The Impact of Financial Shocks on the Forecast Distribution of Output and Inflation," CEPR Discussion Papers 18076, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:18076
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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