Skewed SVARs: Tracking the Structural Sources of Macroeconomic Tail Risks
Essays in Honour of Fabio Canova
ISBN: 978-1-80382-636-3, eISBN: 978-1-80382-635-6
Publication date: 16 September 2022
Abstract
This chapter proposes a vector autoregressive VAR model with structural shocks (SVAR) that are identified using sign restrictions, and whose distribution is subject to time varying skewness. The authors also present an efficient Bayesian algorithm to estimate the model. The model allows tracking joint asymmetric risks to macroeconomic variables included in the SVAR, and provides a structural narrative to the evolution of those risks. When faced with euro area data, our estimation suggests that there has been a significant variation in the skewness of demand, supply and monetary policy shocks. Such variation can explain a significant proportion of the joint dynamics of real GDP growth and inflation, and also generates important asymmetric tail risks in those macroeconomic variables. Finally, compared to the literature on growth- and inflation-at-risk, the authors find that financial stress indicators are not enough to explain all the macroeconomic tail risks.
Keywords
Acknowledgements
Acknowledgements
This chapter reflects the views of the authors and not necessarily those of the ECB, Banco de España or the Eurosystem. We are very grateful to participants at seminars in Banco de España, the European Central Bank and in the conference in honour of Fabio Canova, ‘Advances in Business Cycle Analysis, Structural Modeling and VAR Estimation’.
Citation
Montes-Galdón, C. and Ortega, E. (2022), "Skewed SVARs: Tracking the Structural Sources of Macroeconomic Tail Risks", Dolado, J.J., Gambetti, L. and Matthes, C. (Ed.) Essays in Honour of Fabio Canova (Advances in Econometrics, Vol. 44A), Emerald Publishing Limited, Leeds, pp. 177-210. https://doi.org/10.1108/S0731-90532022000044A007
Publisher
:Emerald Publishing Limited
Copyright © 2022 Carlos Montes-Galdón and Eva Ortega