ECB paper offers model for timely response to financial risks

European Central Bank

A working paper published by the European Central Bank offers a new model aimed at helping policy-makers respond “in a timely manner” to rising risks to financial stability.

In Financial conditions, business cycle fluctuations and growth at risk, Andrea Falconio and Simone Manganelli use a quantile vector autoregression of the US economy. They model industrial production and excess bond premium as endogenous variables.

The authors measure economic risk as the interquantile range. “Worsening

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