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Systemic Risk and the Macroeconomy: An Empirical Evaluation

Listed author(s):
  • Stefano Giglio
  • Bryan T. Kelly
  • Seth Pruitt

This article evaluates a large collection of systemic risk measures based on their ability to predict macroeconomic downturns. We evaluate 19 measures of systemic risk in the US and Europe spanning several decades. We propose dimension reduction estimators for constructing systemic risk indexes from the cross section of measures and prove their consistency in a factor model setting. Empirically, systemic risk indexes provide significant predictive information out- of-sample for the lower tail of future macroeconomic shocks.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 20963.

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Date of creation: Feb 2015
Publication status: published as Giglio, Stefano & Kelly, Bryan & Pruitt, Seth, 2016. "Systemic risk and the macroeconomy: An empirical evaluation," Journal of Financial Economics, Elsevier, vol. 119(3), pages 457-471.
Handle: RePEc:nbr:nberwo:20963
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