Kösem, S., "Targeted Financial Conditions Indices and Growth-at-Risk"

Title: "Targeted Financial Conditions Indices and Growth-at-Risk"

Speaker:  Assistant Professor Sevim Kösem, Deree–The American College of Greece

Host:  Assistant Professor Ioannis Kospentaris, Department of Economics, Athens University of Economics and Business

Room:  76, Patission Str., Antoniadou Wing, 3rd floor, Room A36

Attachments:  PDF of Relevant Paper

Abstract: We propose a novel approach to extract factors from large data sets that maximize covariation with the quantiles of a target distribution of interest. As an application, we build targeted financial conditions indices for the quantiles of future US GDP growth. We show that our indices yield considerably better out-of-sample density forecasts than competing models, as well as insights on the importance of individual financial series for different quantiles of GDP. Notably, leverage indicators appear to co-move more with the median of the predictive distribution, while credit and risk indicators are more informative about downside risks.