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A high-dimensional GDP-at-risk and Inflation-at-risk for the euro area

Author

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  • Matteo Santi

    (Bank of Italy)

Abstract

GDP-at-risk and Inflation-at-risk are standard measures of tail risk in modern macroeconometrics, adapted from tools originally developed in the financial risk management literature. In this paper, these indicators are estimated for the euro area and its Member States by leveraging a high-dimensional dataset in the construction of time-varying conditional distributions of GDP growth and inflation. The distributions obtained at country level are used to assess how the synchrony of euro-area countries' business cycles has evolved since the introduction of the euro. The results indicate significant asymmetries in the balance between upside and downside risks for both GDP and inflation, and a persistently weak synchrony for the left tails of GDP growth distributions during episodes of crisis.

Suggested Citation

  • Matteo Santi, 2025. "A high-dimensional GDP-at-risk and Inflation-at-risk for the euro area," Temi di discussione (Economic working papers) 1484, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1484_25
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    File URL: https://www.bancaditalia.it/pubblicazioni/temi-discussione/2025/2025-1484/en_tema_1484.pdf
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    More about this item

    Keywords

    GDP-at-risk; Inflation-at-risk; high-dimensional macroeconometrics;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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