A tale of two tails: 130 years of growth-at-risk

Martin Gächter, Elias Hasler, Florian Huber

Research output: Working paper/PreprintPreprint

Abstract

We extend the existing growth-at-risk (GaR) literature by examining a long time period of 130 years in a time-varying parameter regression model. We identify several important insights for policymakers. First, both the level as well as the determinants of GaR vary significantly over time. Second, the stability of upside risks to GDP growth reported in earlier research is specific to the period known as the Great Moderation, with the distribution of risks being more balanced before the 1970s. Third, the distribution of GDP growth has significantly narrowed since the end of the Bretton Woods system. Fourth, financial stress is always linked to higher downside risks, but it does not affect upside risks. Finally, other risk indicators, such as credit growth and house prices, not only drive downside risks, but also contribute to increased upside risks during boom periods. In this context, the paper also adds to the financial cycle literature by completing the picture of drivers (and risks) for both booms and recessions over time.
Original languageUndefined/Unknown
DOIs
Publication statusPublished - 17 Feb 2023

Keywords

  • econ.GN
  • q-fin.EC

Fields of Science and Technology Classification 2012

  • 502 Economics

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