GDP-at-Risk: an enlightened catastrophism

It is no exaggeration to state that w e live in uncertain time s. Assessing and quantifying macro-economic risks is therefore essential in navigating today’s financial markets. Q uantile regression allows us to quantify the degree of macro-economic uncertainty. For example, h ow much do the downside risks to euro area GDP growth rise in the light of a tightening of financial conditions or rising international trade tensions ? According to our results, financial conditions are still very supportive for growth and shouldn’t trigger negative multipliers in case of a low growth scenario. On the other hand, risks stemming from a self-reinforcing negative cycle between a low GDP growth and a tense international trade environment are substantially higher.