Working Paper
Risk in a Data-Rich Model
Abstract: We characterize asymmetric tail risk across over one hundred U.S. macroeconomic and financial variables using a dynamic factor model with stochastic volatility. The model unifies growth-at-risk, inflation-at-risk, and sectoral heterogeneity through common factors whose volatility responds endogenously to shocks, combined with heterogeneous factor loadings. We find that asymmetric tail risk is pervasive and heterogeneous: some sectors exhibit severe asymmetry while others show minimal asymmetry, with variation across activity, price, and financial variables. The framework disentangles supply- and demand-driven tail risk dynamics, revealing how the balance of risks shifts across episodes, and identifies where vulnerabilities concentrate across the economy.
JEL Classification: C11; C32; C38; E32; E44;
https://doi.org/10.17016/IFDP.2026.1435
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Provider: Board of Governors of the Federal Reserve System (U.S.)
Part of Series: International Finance Discussion Papers
Publication Date: 2026-03-30
Number: 1435