A0820
Title: Testing growth vulnerabilities and macro-financial linkages
Authors: Leonardo Iania - UCLouvain (Belgium) [presenting]
Francesco Furno - Amazon Web Services (United States)
Francesca Loria - Federal Reserve Board (United States)
Christian Schulz - University of Duisburg-Essen (Germany)
Domenico Giannone - Johns Hopkins University (United States)
Abstract: We test two facts about economic growth established by Adrian, Boyarchenko, and Giannone (2019) using quantile regressions: 1) growth is vulnerable, i.e., downside risks exceed upside risks; 2) macro-financial linkages matter, i.e., deteriorations in financial conditions predict weaker growth, particularly in the lower tail. Several studies have since confirmed these findings using alternative methods, different countries, and samples. Meanwhile, quantile regression inference has seen remarkable progress with the development of new methods for robust inference with time-series data, including bootstrap and HAC procedures. We take stock of this literature and perform robust quantile granger causality tests to reassess these two facts. Our results confirm and in some cases strengthen the original findings, reinforcing growth vulnerabilities and macro-financial linkages as fundamental features of business cycle dynamics.
