Assessing Macroeconomic Tail Risk

This is the authors' abstract. We don't add key points for this paper.

What drives macroeconomic tail risk? To answer this question, we borrow a definition of macroeconomic risk from Adrian et al. (2019) by studying (left-tail) percentiles of the forecast distribution of GDP growth. We use local projections Furthermore, by studying various percentiles jointly, we study how the overall economic outlook-as characterized by the entire forecast distribution of GDP growth-shifts in response to shocks. We find that contractionary shocks disproportionately increase downside risk, independently of what shock we look at.