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Risk Scenarios and Macroeconomic Forecasts

Author

Listed:
  • Fabrice Collard

    (Toulouse School of Economics)

  • Patrick Feve

    (Toulouse School of Economics)

  • Alain Guay

    (University of Quebec in Montreal)

Abstract

This paper studies the impact of Higher Order Belief (HOB) shocks, representing shifts in agents’ beliefs about others’ beliefs, on macroeconomic outcomes. The dynamic causal effects of these shocks are identified by leveraging a combination of a proxy-VAR approach and DSGE-based instruments. Our findings suggest that HOB shocks are indeed a key driver of the business cycle and account for a sizeable share of the observed business cycle volatility. Finally, our identification approach ensures that these shocks are not confounded with other structural/fundamental shocks.

Suggested Citation

  • Fabrice Collard & Patrick Feve & Alain Guay, 2024. "Risk Scenarios and Macroeconomic Forecasts," Working Papers 24-03, Chair in macroeconomics and forecasting, University of Quebec in Montreal's School of Management, revised May 2024.
    • Handle: RePEc:bbh:wpaper:24-03
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    File URL: https://chairemacro.esg.uqam.ca/wp-content/uploads/sites/146/VAR_HOB-3.pdf
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    More about this item

    Keywords

    Higher Order Beliefs; Business cycles; proxy-VAR; DSGE;
    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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