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Federal Reserve Bank of New York
Staff Reports
Vulnerable growth
Tobias Adrian
Nina Boyarchenko
Domenico Giannone

We study the conditional distribution of GDP growth as a function of economic and financial conditions. Deteriorating financial conditions are associated with an increase in the conditional volatility and a decline in the conditional mean of GDP growth, leading the lower quantiles of GDP growth to vary with financial conditions and the upper quantiles to be stable over time: Upside risks to GDP growth are low in most periods while downside risks increase as financial conditions become tighter. We argue that amplification mechanisms in the financial sector generate the observed growth vulnerability dynamics.

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Tobias Adrian & Nina Boyarchenko & Domenico Giannone, Vulnerable growth, Federal Reserve Bank of New York, Staff Reports 794, 29 Sep 2016, revised 01 Nov 2017.
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Keywords: Downside risk; entropy; quantile regressions
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