Modeling and Forecasting Macroeconomic Downside Risk

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 predictive density GDP growth, we find an accelerating decline skewness conditional distributions, with significant, procyclical variations. Decreasing trend-skewness, which turned negative aftermath Great Recession, is associated long-run slowdown started early 2000s. Short-run fluctuations imply negatively skewed densities ahead during recessions, often anticipated by deteriorating financial conditions, while positively distributions characterize expansions. The model delivers competitive out-of-sample (point, tail) forecasts, improving upon standard benchmarks, due strong signals increasing provided current conditions.