NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Systemic Risk and the Macroeconomy: An Empirical Evaluation

Stefano Giglio, Bryan T. Kelly, Seth Pruitt

NBER Working Paper No. 20963
Issued in February 2015
NBER Program(s):Asset Pricing, Economic Fluctuations and Growth, International Finance and Macroeconomics

This article evaluates a large collection of systemic risk measures based on their ability to predict macroeconomic downturns. We evaluate 19 measures of systemic risk in the US and Europe spanning several decades. We propose dimension reduction estimators for constructing systemic risk indexes from the cross section of measures and prove their consistency in a factor model setting. Empirically, systemic risk indexes provide significant predictive information out- of-sample for the lower tail of future macroeconomic shocks.

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Document Object Identifier (DOI): 10.3386/w20963

Published: Giglio, Stefano & Kelly, Bryan & Pruitt, Seth, 2016. "Systemic risk and the macroeconomy: An empirical evaluation," Journal of Financial Economics, Elsevier, vol. 119(3), pages 457-471. citation courtesy of

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