Forecasting Macroeconomic Risks

35 Pages Posted: 3 Mar 2020

See all articles by Patrick Adams

Patrick Adams

Massachusetts Institute of Technology (MIT)

Tobias Adrian

International Monetary Fund

Nina Boyarchenko

Federal Reserve Bank of New York

Domenico Giannone

International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)

Date Written: February 2020

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

Adams, Patrick and Adrian, Tobias and Boyarchenko, Nina and Giannone, Domenico, Forecasting Macroeconomic Risks (February 2020). CEPR Discussion Paper No. DP14436, Available at SSRN: https://ssrn.com/abstract=3547369

Patrick Adams (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

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Tobias Adrian

International Monetary Fund ( email )

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Washington, DC 20431
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HOME PAGE: http://www.tobiasadrian.com

Nina Boyarchenko

Federal Reserve Bank of New York ( email )

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New York, NY 10045
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212-720-1582 (Fax)

Domenico Giannone

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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