Measuring Economic Downside Risk and Severity: Growth at Risk
Year: 2001
Type: report
Abstract: Output collapses and crises are a fact of life. In this paper we propose a new measurement for economic downside risk and severity: Growth at Risk. It is similar to the concept of Value at Risk in finance and it summarizes the expected maximum economic downturn over a target horizon at a given confidence level. After providing a taxonomy of growth risks, we construct a panel data set on Growth at Risk for 84 countries over the period 1980-98. We then investigate the relationship between downside risks and long-term average growth in a cross-country analysis. We find that higher perceived levels of downside growth risk seem to be negatively associated with long-term growth. This result suggests that risk management in a broad sense should be a vital part of pro-growth and poverty reduction strategies.
Authors: Yan Wang, Yudong Yao
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2160809198