'Modelling and Forecasting Macroeconomic Downside Risk'


‘Modelling and Forecasting Macroeconomic Downside Risk’


Thursday 11 February 2021, 11:30 — 12:30

Presented by: Ivan Petrella (University of Warwick and ESCoE)

We document a substantial increase in downside risk to US economic growth over the last 30 years. By modelling secular trends and cyclical changes of the predictive density of GDP growth, we recover an accelerating decline in the skewness of the conditional distributions, with significant, procyclical variations. Decreasing trend-skewness, turning negative in the aftermath of the Great Recession, is associated with the long-run growth slowdown starting in the early 2000s. Negatively skewed predictive densities arise ahead of and during recessions and are often anticipated by deteriorating financial conditions. Positively skewed distributions characterise expansions. The model delivers competitive out-of-sample (point, density and tail) forecasts, improving upon standard benchmarks.

Video recording