Forecasting and stress testing with quantile vector …...2019/05/15 · Forecasting and stress...

Forecasting and stress testing with quantile vector autoregression

Frankfurt am Main, 15 May, 2019Conference on Systemic Risk and the Macroeconomy

Sulkhan ChavleishviliSimone ManganelliEuropean Central Bank

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www.ecb.europa.eu © 2

A dynamic multivariate time series model

Systematic influences of conditioning variables on the conditional distribution of the response

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US Growth at Risk

Source: Adrian et al., AER 2019

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www.ecb.europa.eu ©

Quantile regressionQuantile VAR – Identification and forecastingGrowth vulnerabilities in Europe

Outline

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Central bank related applications

CAViaR: Engle and Manganelli, 2004VAR for VaR: White, Kim and Manganelli, 2015CoVaR: Adrian and Brunnermeier, 2016GaR: Growth at Risk (Adrian et al., 2019)IaR: Inflation at Risk (Ghysels et al., 2018)CaR: Capital at Risk

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Ordinary Least Squares – Mean

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Least absolute deviation – Median

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Quantile regression

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Comparison of loss functions

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Outline

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Structural VAR

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Structural VAR

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Structural VAR

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Structural VAR

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Structural VAR

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Structural quantile VAR

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Forecasting with structural quantile VAR

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Careful with the cross section

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Forecasting with VAR

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Forecasting with quantile VAR

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Stress testing with quantile VAR

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Outline

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Vulnerable growth in Europe

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Important linkages

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Important linkages

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Euro area Growth at Risk

10% quantile

90% quantile

IP realization

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Euro area Growth at Risk

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Impulse response function for quantile VAR

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Quantile impulse response function for IPShock to CISS

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Stress testing euro area growth

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EA IP forecast under stress scenario

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EA IP forecast under stress scenario

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Conclusion

Methodological contribution:• Introduced quantile VAR• Showed how to do forecasting with quantile regression• Quantile forecasting <-> Stress testing

Empirical findings:• Strong macro-financial linkages in the euro area• Macro-financial linkages are activated under stress• Standard OLS VAR misses most of the action

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Will the tortoise really win in the end?

Forecasting and stress testing with quantile vector …...2019/05/15 · Forecasting and stress...

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