Working Paper: CEPR ID: DP14436
Authors: Patrick Adams; Tobias Adrian; Nina Boyarchenko; Domenico Giannone
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.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial conditions (E66) | GDP growth (O49) |
| Financial conditions (E66) | Unemployment (J64) |
| Financial conditions (E66) | Variance of GDP growth (O47) |
| Financial conditions (E66) | Variance of Unemployment (J64) |
| GDP growth (O49) | Variance of GDP growth (O47) |
| Financial conditions (E66) | GDP growth and Variance of GDP growth (O49) |
| Financial conditions (E66) | Unemployment and Variance of Unemployment (J64) |