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

This study empirically analyzes the impact of financial variables on GDP growth in risk scenarios. To this end, data from Peru are used to estimate losses in GDP growth under extreme risk scenarios using the “Growth at Risk” methodology developed by Adrian et al. (2019). Three categories of financial risks are considered: leverage, domestic asset prices, and external variables. The results show that excessive growth in credit and asset prices are indicators of a deterioration in future financial conditions and a slowdown in GDP growth under crisis scenarios across different time horizons. Furthermore, including financial variables improves GDP projections under crisis scenarios, as observed during the 2008–2009 Global Financial Crisis.