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The impact of financial shocks on the forecast distribution of output and inflation

Author

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

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

  • Mario Forni & Luca Gambetti & Nicolò Maffei-Faccioli & Luca Sala, 2023. "The impact of financial shocks on the forecast distribution of output and inflation," Working Paper 2023/3, Norges Bank.
    • Handle: RePEc:bno:worpap:2023_3
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    File URL: https://hdl.handle.net/11250/3058242
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    More about this item

    Keywords

    Tail Risk; Uncertainty; Skewness; Forecast Distribution; SVAR; Financial shocks; Monetary Policy Shocks; Quantile Regressions;
    All these keywords.

    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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