Types of systemic risk and macroeconomic forecast: Evidence from China

Abstract

<abstract> <p>The macroeconomic forecast is of great significance to the government macroeconomic policy formulation and micro-agent operational decisions. The individual systemic risk measurement has a certain scope of application and application conditions and, therefore, it is difficult for the individual indicator to reflect the systemic risk comprehensively. In this paper, the systemic risk is divided into four types: institution-specific risk, comovement and contagion, financial vulnerability, liquidity and credit. Next, the optimal combination is selected from multiple individual systemic risk indicators through dominance analysis to forecast the macroeconomic performance. The macroeconomic performance selects consumer price index (CPI), producer price index (PPI), industrial growth value (IVA), growth rate of broad money supply (M2) and gross domestic product (GDP) as proxies to compare the forecast effect of systemic risk, with the period considered spans from 2003M4 to 2022M7. The results of immediate forecasts of different macroeconomic performance proxies demonstrate the individual indicator cannot cover all the information of systemic risk, can only reflect the specific aspect of macroeconomic performance, or is only highly relevant in a given period. The contribution of systemic risk to the forecast of different macroeconomic performance proxies in different terms is diverse, and show various types of results. This paper uses the optimal combination of systemic risk to forecast the macroeconomic performance, which provides a valuable reference for improving the macro prudential supervision mechanism.</p> </abstract>