Nonlinear Drivers of Macroeconomic Tail Risk: A Threshold Stochastic Volatility-in-Mean VAR with Regime-Dependent Leverage
The study develops a complex VAR model to understand how macroeconomic shocks affect extreme risks versus average outcomes. It finds that shocks driving the center of predictions do not necessarily drive tail risk, and this relationship changes depending on whether the economy is in a high or low inflation state.