Aggregate activity exhibits tail risks. That is, the distribution of aggregate fluctuations has fatter tails than that of a normally distributed random variable. Understanding these tail risks is important for multiple macroeconomic topics, including evaluating the utility cost of fluctuations (Barro, 2009), and forecasting (Curdia, Del Negro, and Greenwald, 2014). In this paper, we empirically investigate whether higher moments have sectoral origins.
Accounting for the Sources of Macroeconomic Tail Risks
WP 18-08 — Using a multi-industry real business cycle model, we empirically examine the microeconomic origins of aggregate tail risks. Our model, estimated using industry-level data from 1972 to 2016, indicates that industry-specific shocks account for most of the third and fourth moments of GDP growth.