We document a substantial increase in downside risk to US economic growth over the last 30 years. By modelling secular trends and cyclical changes of the predictive density of GDP growth, we find an accelerating decline in the skewness of the conditional distributions, with significant, procyclical variations. Decreasing trend-skewness, which turned negative in the aftermath of the Great Recession, is associated with the long-run growth slowdown started in the early 2000s. Short-run skewness fluctuations imply negatively skewed predictive densities ahead of and during recessions, often anticipated by deteriorating financial conditions, while positively skewed distributions characterize expansions. The model delivers competitive out-of-sample (point, density and tail) forecasts, improving upon standard benchmarks, due to the strong signals of increasing downside risk provided by current financial conditions.

This paper introduces an adaptive algorithm for time-varying autoregressive models in the presence of heavy tails. The evolution of the parameters is determined by the score of the conditional distribution, the resulting model is observation-driven and is estimated by classical methods. In particular, we consider time variation in both coefficients and volatility, emphasizing how the two interact with each other. Meaningful restrictions are imposed on the model parameters so as to attain local stationarity and bounded mean values. The model is applied to the analysis of inflation dynamics with the following results: allowing for heavy tails leads to significant improvements in terms of fit and forecast, and the adoption of the Student-t distribution proves to be crucial in order to obtain well calibrated density forecasts. These results are obtained using the US CPI inflation rate and are confirmed by other inflation indicators, as well as for CPI inflation of the other G7 countries.JEL classification: C22, C51, C53, E31.

This paper exploits a structural time series approach to model the time pattern of multiple and resurgent food scares and their direct and cross-product impacts on consumer response. A structural time series Almost Ideal Demand System (STS-AIDS) is embedded in a vector error correction framework to allow for dynamic effects (VEC-STS-AIDS). Italian aggregate household data on meat demand is used to assess the time-varying impact of a resurgent BSE crisis (1996 and 2000) and the 1999 Dioxin crisis. The VEC-STS-AIDS model monitors the short-run impacts and performs satisfactorily in terms of residuals diagnostics, overcoming the major problems encountered by the customary vector error correction approach.

In this paper we examine the empirical features of both the business and financial cycles in Italy. We employ univariate and multivariate trend-cycle decompositions based on unobserved component models. Univariate estimates highlight the different cyclical properties (persistence, duration and amplitude) of real GDP and real credit to the private sector. Multivariate estimates uncover the presence of feedback effects between the real and financial cycles. At the same time, in the most recent period (2015-2016), the multivariate approach highlights a wider output gap than that estimated by the univariate models considered in this paper.JEL Classification: C32, E32, E44.

We analyze the interaction among the common and country specific components for the inflation rates in twelve euro area countries through a factor model with time varying parameters. The variation of the model parameters is driven by the score of the predictive likelihood, so that, conditionally on past data, the model is Gaussian and the likelihood function can be evaluated using the Kalman filter. The empirical analysis uncovers significant variation over time in the model parameters. We find that, over an extended time period, inflation persistence has fallen over time and the importance of common shocks has increased relatively to the idiosyncratic disturbances. According to the model, the fall in inflation observed since the sovereign debt crisis, is broadly a common phenomenon, since no significant cross country inflation differentials have emerged. Stressed countries, however, have been hit by unusually large shocks.JEL classification: E31, C22, C51, C53.

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This paper proposes a novel and ‡exible framework to estimate autoregressive models with time-varying parameters. Our setup nests various adaptive algorithms that are commonly used in the macroeconometric literature, such as learning-expectations and forgetting-factor algorithms. These are generalized along several directions: speci…cally, we allow for both Student-t distributed innovations as well as time-varying volatility.Meaningful restrictions are imposed to the model parameters, so as to attain local stationarity and bounded mean values. The model is applied to the analysis of in ‡ation dynamics. Allowing for heavy-tails leads to a signi…cant improvement in terms of …t and forecast. Moreover, it proves to be crucial in order to obtain well-calibrated density forecasts.JEL classi…cation: C22, C51, C53, E31.

The paper investigates the role of domestic and global determinants of euro area core inflation. We analyse the entire conditional distribution of inflation by estimating a Phillips curve type relationship using an expectile regression approach, extended to capture time-varying effects. The main findings are as follows. First, both the domestic and foreign output gap are significant drivers of euro area core inflation, once external demand pressures are properly orthogonalized in a modified measure of domestic gap. However, the inflationary impact of the domestic component is relatively stronger. Second, the domestic output gap has a bigger influence in the right tail of the conditional distribution of inflation. Third, adding international price pressures in the regression weakens the link between inflation and the foreign output gap. Fourth, in a time-varying perspective, there is an increase in the response of inflation to the domestic gap in the last decade but only at the lower quantiles. Overall, the evidence on the so-called "globalization hypothesis" is mixed: while the pass-through to inflation of foreign prices and the exchange rate increased over time at all quantiles, the impact of global slack remained broadly stable, particularly in the central part of the distribution.