Systemic Risks and the Macroeconomy

Marcella Lucchetta and Gianni De Nicolo

No 2010/029, IMF Working Papers from International Monetary Fund

Abstract: This paper presents a modeling framework that delivers joint forecasts of indicators of systemic real risk and systemic financial risk, as well as stress-tests of these indicators as impulse responses to structural shocks identified by standard macroeconomic and banking theory. This framework is implemented using large sets of quarterly time series of indicators of financial and real activity for the G-7 economies for the 1980Q1-2009Q3 period. We obtain two main results. First, there is evidence of out-of sample forecasting power for tail risk realizations of real activity for several countries, suggesting the usefulness of the model as a risk monitoring tool. Second, in all countries aggregate demand shocks are the main drivers of the real cycle, and bank credit demand shocks are the main drivers of the bank lending cycle. These results challenge the common wisdom that constraints in the aggregate supply of credit have been a key driver of the sharp downturn in real activity experienced by the G-7 economies in 2008Q4- 2009Q1.

Keywords: WP; Systemic Risk; Dynamic Factor Model; Quantile Regressions; bank credit demand shocks; bank credit growth; risk indicator; aggregate demand demand shock; bank lending growth; Bank credit; Loans; Inflation; Vector autoregression (search for similar items in EconPapers)
Pages: 41
Date: 2010-02-01
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Citations: View citations in EconPapers (35)

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