Real gross domestic product

Financial economics

Quantile

Econometrics

Economics

Downside risk

Portfolio

Computer science

Monetary economics

Computer security

Volatility (finance)

Vulnerability (computing)

American Economic Review

We study the conditional distribution of GDP growth as a function of economic and financial conditions. Deteriorating financial conditions are associated with an increase in the conditional volatility and a decline in the conditional mean of GDP growth, leading the lower quantiles of GDP growth to vary with financial conditions and the upper quantiles to be stable over time. Upside risks to GDP growth are low in most periods while downside risks increase as financial conditions become tighter. We argue that amplification mechanisms in the financial sector generate the observed growth vulnerability dynamics. (JEL C53, E23, E27, E32, E44)

Vulnerable Growth