Using structural models to understand macroeconomic tail risks
William Gatt, Carlos Montes-Galdón, Viktors Ajevskis, František Brázdik, Ivan De Lorenzo, Pablo García, Benedikt Kolb, Diana Lima, Kostas Mavromatis, Eva Ortega, Niki Papadopoulou
Abstract
Understanding asymmetric risks in macroeconomic variables is challenging. Most structural models used for policy analysis are linearised and therefore cannot generate asymmetries such as those documented in the empirical growth-at-risk (GaR) literature. This report examines how structural models can incorporate nonlinearities to generate tail risks.
Link to full paper - https://www.ecb.europa.eu/pub/pdf/scpops/ecb.op357~804f63ec49.en.pdf
Occasional Series Paper, Report of the WGEM-WGF Expert Group on Macro-at-Risk, No. 357