Financial Vulnerability and GDP Risk Scenarios Using Growth at Risk (GaR)

This paper empirically analyzes the impact of financial variables on GDP growth in risk scenarios. For this purpose, data from Peru are used and the losses in GDP growth are estimated in the face of extreme risk scenarios using the so-called "Growth at Risk" methodology proposed by Adrian et al. (2019). Three categories of financial risks are considered: leverage, prices of domestic assets and external variables. The results show that an excessive growth of credit and asset prices are indicators of a deterioration of future financial conditions and a slowdown in GDP growth in crisis scenarios for different horizons. Also, including financial variables improves the projection of GDP under crisis scenarios, as observed during the Global Financial Crisis of 2008-2009. (Audio: Department of Economic Publications)