Working Paper: NBER ID: w20963
Authors: Stefano Giglio; Bryan T. Kelly; Seth Pruitt
Abstract: This article evaluates a large collection of systemic risk measures based on their ability to predict macroeconomic downturns. We evaluate 19 measures of systemic risk in the US and Europe spanning several decades. We propose dimension reduction estimators for constructing systemic risk indexes from the cross section of measures and prove their consistency in a factor model setting. Empirically, systemic risk indexes provide significant predictive information out- of-sample for the lower tail of future macroeconomic shocks.
Keywords: No keywords provided
JEL Codes: C31; C32; C38; C58; E44; G01; G2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| systemic risk measures (E44) | lower tail macroeconomic risks (E66) |
| systemic risk measures (E44) | median macroeconomic variables (E19) |
| financial sector equity volatility (G12) | downside macroeconomic risks (E66) |
| nonfinancial volatility (G19) | downside macroeconomic risks (E66) |
| systemic risk indicators (E44) | likelihood of monetary policy easing (E52) |