IDEAS home Printed from https://ideas.repec.org/a/eee/ecanpo/v85y2025icp1-14.html
   My bibliography  Save this article

Unveiling the shadows: The effects of financial conditions on the tail risks of China's macroeconomic activities

Author

Listed:
  • Liu, Han
  • Wang, Lijun
  • Zhuo, Xingxuan

Abstract

The impact of financial conditions on Chinese macroeconomic activities has recently received considerable attention. This paper utilizes a constructed Chinese financial conditions index (FCI) to appraise the role of financial conditions in Chinese growth at risk, and further traces the influencing factors of tail risks of macroeconomic activities. The findings reveal that financial conditions may lead to an increase in future tail risks for macroeconomic activities, and financial conditions are associated more with downside risks than with upside potential. Moreover, the extension degree of financial conditions in relation to the tail risks of macroeconomic activities displays time-varying and heterogeneous characteristics. In particular, financial conditions have a more pronounced effect on the tail risks of investment growth. Additionally, this paper provides direct evidence from a financial perspective, suggesting that M2 is a common factor of the tail risks of macroeconomic activities, and treasury yields play a crucial role in tail risks related to consumption growth. Simultaneously, the real effective exchange rate of the Renminbi Yuan emerges as a vital factor in tail risks regarding import and export growth. Our results provide valuable insights for the government in addressing macroeconomic risks and formulating relevant policies.

Suggested Citation

  • Liu, Han & Wang, Lijun & Zhuo, Xingxuan, 2025. "Unveiling the shadows: The effects of financial conditions on the tail risks of China's macroeconomic activities," Economic Analysis and Policy, Elsevier, vol. 85(C), pages 1-14.
  • Handle: RePEc:eee:ecanpo:v:85:y:2025:i:c:p:1-14
    DOI: 10.1016/j.eap.2024.11.018
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S031359262400331X
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.eap.2024.11.018?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Financial conditions; Tail risk; Macroeconomic activities; Deep GaR; Generalized variance decompositions;
    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
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecanpo:v:85:y:2025:i:c:p:1-14. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/economic-analysis-and-policy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.