Working Paper: CEPR ID: DP17162
Authors: Martin Iseringhausen; Ivan Petrella; Konstantinos Theodoridis
Abstract: We develop a data-rich measure of expected macroeconomic skewness in the US economy. Expected macroeconomic skewness is strongly procyclical, mainly reflects the cyclicality in the skewness of real variables, is highly correlated with the cross-sectional skewness of firm-level employment growth, and is distinct from financial market skewness. Revisions in expected skewness deliver dynamics that are nearly indistinguishable from those produced by the main business cycle shock of Angeletos et al. (2020). This result is robust to controlling for macroeconomic volatility and uncertainty, and alternative macroeconomic shocks. Our findings highlight the importance of higher-order dynamics for business cycle theories.
Keywords: Asymmetry; Principal Component Analysis; Quantile Regression; VAR
JEL Codes: C22; C38; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| revisions in expected skewness (C46) | contraction in output (E23) |
| revisions in expected skewness (C46) | contraction in consumption (E21) |
| revisions in expected skewness (C46) | contraction in investment (E22) |
| revisions in expected skewness (C46) | decrease in GDP (E20) |
| skewness shock (C46) | business cycle shock (E32) |
| revisions in expected skewness (C46) | macroeconomic dynamics (E19) |
| revisions in expected skewness (C46) | distinct from aggregate volatility and uncertainty (D89) |