Staff Reports
Forecasting Macroeconomic Risks
Number 914
February 2020

JEL classification: C22, E17, E37

Authors: Patrick Adams, Tobias Adrian, Nina Boyarchenko, and Domenico Giannone

We construct risks around consensus forecasts of real GDP growth, unemployment, and inflation. We find that risks are time-varying, asymmetric, and partly predictable. Tight financial conditions forecast downside growth risk, upside unemployment risk, and increased uncertainty around the inflation forecast. Growth vulnerability arises as the conditional mean and conditional variance of GDP growth are negatively correlated: downside risks are driven by lower mean and higher variance when financial conditions tighten. Similarly, employment vulnerability arises as the conditional mean and conditional variance of unemployment are positively correlated, with tighter financial conditions corresponding to higher forecasted unemployment and higher variance around the consensus forecast.

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AUTHOR DISCLOSURE STATEMENT(S)
Patrick Adams
I declare that I have no relevant or material financial interests that relate to the research described in this paper.

Tobias Adrian
I declare that I have no relevant or material financial interests that relate to the research described in this paper.

Nina Boyarchenko
The author declares that she has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.

Domenico Giannone
I declare that I have no relevant or material financial interests that relate to the research described in this paper.