## Figure 3.1. Tighter Financial Conditions Forecast Greater Downside Tail Risk to Global Growth

## Source details

**Canonical URL:** [Figure 3.1. Tighter Financial Conditions Forecast Greater Downside Tail Risk to Global Growth](https://www.imf.org/-/media/files/publications/gfsr/2017/october/chapter-3/pdf-data/figure3-1.pdf)

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### Key findings
- As financial conditions tighten, the probability of a large economic contraction increases.
- The downside and upside risks are represented by the 5th and 95th percentiles, respectively, with the median denoting the 50th percentile forecast made four quarters earlier.
- The recent global financial and euro area sovereign debt crises illustrate episodes when tighter financial conditions were associated with greater downside tail risk.

### Panel descriptions and captions
- Panel 1: Quantile Coefficient Estimates (Standard deviations)
  - Depicts the estimated coefficients on the current quarter FCI in a quantile regression of four-quarters-ahead GDP growth on current quarter FCI and GDP growth.
  - Axis tick marks shown: –2.0, –1.8, –1.6, –1.4, –1.2, –1.0, –0.8, –0.6, –0.4, –0.2, 0.0.
  - Labels: 5th 25th 50th 75th 95th (Percentile).
  - Annotation: "As financial conditions tighten, the probability of a large economic contraction increases ..."

- Panel 2: One-Year-Ahead Density Forecast (Left scale = percent; right scale = standard deviations)
  - Depicts the time series of estimated, conditional 5th, 50th, and 95th quantiles of four-quarters-ahead GDP growth.
  - The median (red) line denotes the forecast of the 50th quantile of GDP growth made four quarters earlier using the methodology described in Annex 3.3.
  - The shaded area is bound at the top and bottom by, respectively, the forecasts of the 95th and 5th quantiles of GDP growth made four quarters earlier.
  - Axis tick marks and ranges shown: –10 0 10 20 30 40 (left scale); –20 –15 –10 –5 0 5 10 (additional axis labels).
  - Time series labels shown: 1991:Q1, 93:Q1, 95:Q1, 97:Q1, 99:Q1, 2001:Q1, 03:Q1, 05:Q1, 07:Q1, 09:Q1, 11:Q1, 13:Q1, 15:Q1, 16:Q4.
  - Annotation: "... as was seen in the recent global financial and euro area sovereign debt crises."

### Data and methodology notes
- FCI = financial conditions index.
- Sources: Bloomberg Finance L.P.; Haver Analytics; IMF, Global Data Source and World Economic Outlook databases; Thomson Reuters Datastream; and IMF staff estimates.
- Note: Panel 1 depicts the estimated coefficients on the current quarter FCI in a quantile regression of four-quarters-ahead GDP growth on current quarter FCI and GDP growth. Panel 2 depicts the time series of estimated, conditional 5th, 50th, and 95th quantiles of four-quarters-ahead GDP growth. The median (red) line denotes the forecast of the 50th quantile of GDP growth made four quarters earlier using the methodology described in Annex 3.3. The shaded area is bound at the top and bottom by, respectively, the forecasts of the 95th and 5th quantiles of GDP growth made four quarters earlier.

*Source: IMF staff figure (figure3-1).*

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_Source: https://www.imf.org/-/media/files/publications/gfsr/2017/october/chapter-3/pdf-data/figure3-1.pdf_