Growth at Risk: Forecast Distribution of GDP Growth in Israel
We estimate the distribution of future GDP growth given current financial and macroeconomic conditions. The distribution is generally symmetric, indicating that upside and downside risks are balanced. Its dispersion, which captures forecast uncertainty, rises when the median forecast decreases. The model allows us to study the connection between financial variables and GDP growth. We find that accommodative financial conditions, either in the local or the global economy, contribute to downside risks to growth within three years.
Keywords: downside risks, macro-financial linkages, volatility paradox.
JEL Classification: E17, E32, E44, G1.