forecasting and stress testing with quantile vector …...2019/05/15 · forecasting and stress...
TRANSCRIPT
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
Rubric
www.ecb.europa.eu © 2
A dynamic multivariate time series model
Systematic influences of conditioning variables on the conditional distribution of the response
Rubric
www.ecb.europa.eu © 3
US Growth at Risk
Source: Adrian et al., AER 2019
Rubric
www.ecb.europa.eu ©
Quantile regressionQuantile VAR – Identification and forecastingGrowth vulnerabilities in Europe
4
Outline
Rubric
www.ecb.europa.eu © 5
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
Rubric
www.ecb.europa.eu © 6
Ordinary Least Squares – Mean
Rubric
www.ecb.europa.eu © 7
Least absolute deviation – Median
Rubric
www.ecb.europa.eu © 8
Quantile regression
Rubric
www.ecb.europa.eu © 9
Comparison of loss functions
Rubric
www.ecb.europa.eu ©
Quantile regressionQuantile VAR – Identification and forecastingGrowth vulnerabilities in Europe
10
Outline
Rubric
www.ecb.europa.eu © 11
Structural VAR
Rubric
www.ecb.europa.eu © 12
Structural VAR
Rubric
www.ecb.europa.eu © 13
Structural VAR
Rubric
www.ecb.europa.eu © 14
Structural VAR
Rubric
www.ecb.europa.eu © 15
Structural VAR
Rubric
www.ecb.europa.eu © 16
Structural quantile VAR
Rubric
www.ecb.europa.eu © 17
Structural quantile VAR
Rubric
www.ecb.europa.eu © 18
Structural quantile VAR
Rubric
www.ecb.europa.eu © 19
Structural quantile VAR
Rubric
www.ecb.europa.eu © 20
Forecasting with structural quantile VAR
Rubric
www.ecb.europa.eu © 21
Careful with the cross section
Rubric
www.ecb.europa.eu © 22
Careful with the cross section
Rubric
www.ecb.europa.eu © 23
Careful with the cross section
Rubric
www.ecb.europa.eu © 24
Forecasting with VAR
Rubric
www.ecb.europa.eu © 25
Forecasting with quantile VAR
Rubric
www.ecb.europa.eu © 26
Stress testing with quantile VAR
Rubric
www.ecb.europa.eu ©
Quantile regressionQuantile VAR – Identification and forecastingGrowth vulnerabilities in Europe
27
Outline
Rubric
www.ecb.europa.eu © 28
Vulnerable growth in Europe
EA IP
CISS
Rubric
www.ecb.europa.eu © 29
Data
Rubric
www.ecb.europa.eu © 30
Important linkages
Rubric
www.ecb.europa.eu © 31
Important linkages
Rubric
www.ecb.europa.eu © 32
Euro area Growth at Risk
10% quantile
90% quantile
IP realization
OLS
Rubric
www.ecb.europa.eu © 33
Euro area Growth at Risk
Rubric
www.ecb.europa.eu © 34
Impulse response function for quantile VAR
Rubric
www.ecb.europa.eu © 35
Quantile impulse response function for IPShock to CISS
Rubric
www.ecb.europa.eu © 36
Stress testing euro area growth
Rubric
www.ecb.europa.eu © 37
EA IP forecast under stress scenario
Rubric
www.ecb.europa.eu © 38
EA IP forecast under stress scenario
Rubric
www.ecb.europa.eu © 39
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
Rubric
www.ecb.europa.eu © 40
Will the tortoise really win in the end?