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The Term Structure of Growth-at-Risk

Author

Listed:
  • Mr. Tobias Adrian
  • Federico Grinberg
  • Nellie Liang
  • Sheheryar Malik
Abstract
Using panel quantile regressions for 11 advanced and 10 emerging market economies, we show that the conditional distribution of GDP growth depends on financial conditions, with growth-at-risk (GaR)—defined as growth at the lower 5th percentile—more responsive than the median or upper percentiles. In addition, the term structure of GaR features an intertemporal tradeoff: GaR is higher in the short run; but lower in the medium run when initial financial conditions are loose relative to typical levels, and the tradeoff is amplified by a credit boom. This shift in the growth distribution generally is not incorporated when solving dynamic stochastic general equilibrium models with macrofinancial linkages, which suggests downside risks to GDP growth are systematically underestimated.

Suggested Citation

  • Mr. Tobias Adrian & Federico Grinberg & Nellie Liang & Sheheryar Malik, 2018. "The Term Structure of Growth-at-Risk," IMF Working Papers 2018/180, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2018/180
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    More about this item

    Keywords

    WP; dummy variable; Gaussian distribution; monetary policy; real GDP; time series; downside risk; macrofinancial linkages; volatility paradox; financial stability; quantile regression; term structure; GaR estimate; FCI group; growth distribution; coefficient estimate; GaR measure; projections estimation method; GaR decline; credit growth; FCI decile group; OLS panel estimation method; Growth-at-risk assessment; Credit booms; Credit; Financial sector risk; Global;
    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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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