Title: Assessing macroeconomic tail risk
Authors: Francesca Loria - Federal Reserve Board (United States)
Christian Matthes - Indiana University (United States) [presenting]
Donghai Zhang - University of Bonn (Germany)
Abstract: GDP and Industrial Production in the US feature substantial tail risk. While this fact is well documented, it is not clear what drives this asymmetry - is there a common propagation mechanism or is it one specific shock only that drives this skewness? We provide evidence for the first explanation by (i)showing that the 10th percentile of the GDP and IP distributions responds drastically more to various supply and demand shocks than the median or the 90th percentile, and(ii) showing that two data-generating processes that feature a common propagation mechanism can match these patterns.