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Forecasting Macroeconomic Risks

Author

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  • Adrian, Tobias
  • Adams, Patrick
  • Boyarchenko, Nina
  • Giannone, Domenico

Abstract

We construct risks around consensus forecasts of real GDP growth, unemployment and inflation. We find that risks are time-varying, asymmetric and partly predictable. Tight financial conditions forecast downside growth risk, upside unemployment risk and increased uncertainty around the inflation forecast. Growth vulnerability arises as the conditional mean and conditional variance of GDP growth are negatively correlated: downside risks are driven by lower mean and higher variance when financial conditions tighten. Similarly, employment vulnerability arises as the conditional mean and conditional variance of unemployment are positively correlated, with tighter financial conditions corresponding to higher forecasted unemployment and higher variance around the consensus forecast.

Suggested Citation

  • Adrian, Tobias & Adams, Patrick & Boyarchenko, Nina & Giannone, Domenico, 2020. "Forecasting Macroeconomic Risks," CEPR Discussion Papers 14436, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14436
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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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