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Systemic Risk and Severe Economic Downturns : A Targeted and Sparse Analysis
in Journal of Banking and Finance, 134
Voir la revue «Journal of Banking and Finance»
Recent studies indicate that systemic risk has predictive power over severe economic downturns. We propose a novel methodology that employs sparsity and targeting approaches to optimally select and combine systemic risk measures to forecast the tail of a given economic variable. Out-of-sample analysis shows that the optimal combination of systemic risk metrics may vary over time, forecasting horizons and economic proxies. Moreover, a few systemic risk measures contain all the important
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information for capturing the relation between systemic risk and real economy; therefore, a fixed and static combination approach may not be optimal, and the flexible parsimonious extension we introduce leads to improvement in forecasting performance.
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