Research Discussion Paper – RDP 2021-03 Financial Conditions and Downside Risk to Economic Activity in Australia

Contents

• Introduction
• Modelling Risks to Economic Activity from Changing Financial Conditions
• How Do Financial Conditions Affect Risks to Economic Outcomes?
• Conclusion
• Appendix A: Estimating a Financial Conditions Index for Australia
• Appendix B: Additional Growth-at-Risk Results
• References
• Copyright and Disclaimer Notice

We are grateful to Benjamin Beckers, Michele Bullock, Jonathan Kearns, Jeffrey Sheen, John Simon, Penelope Smith, seminar participants at the Reserve Bank of Australia, workshop participants at the Sydney Macroeconomic Reading Group Workshop, seminar participants at the University of Queensland, conference participants at the 3rd Sydney Banking and Financial Stability Conference held at the University of Sydney in December 2019 as well as workshop participants at the DBS-SWUFE Centre for Banking and Financial Stability Workshop held at Deakin University in February 2020 for helpful comments and suggestions. We would also like to thank Lawrence Schmidt for useful discussions related to understanding and implementing the quantile spacing method as well as Mark Phoon and Marcus Miller for data assistance. Any remaining errors are solely our own. The views expressed in this paper are those of the authors and do not necessarily reflect the views of the Reserve Bank of Australia.