DP17162 Aggregate Skewness and the Business Cycle

Author(s): Martin Iseringhausen, Ivan Petrella, Konstantinos Theodoridis
Publication Date: March 2022
Keyword(s): Asymmetry, Principal Component Analysis, Quantile regression, VAR
JEL(s): C22, C38, E32
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=17162

We develop a data-rich measure of expected macroeconomic skewness in the US economy. Expected macroeconomic skewness is strongly procyclical, mainly reflects the cyclicality in the skewness of real variables, is highly correlated with the cross-sectional skewness of firm-level employment growth, and is distinct from financial market skewness. Revisions in expected skewness deliver dynamics that are nearly indistinguishable from those produced by the main business cycle shock of Angeletos et al. (2020). This result is robust to controlling for macroeconomic volatility and uncertainty, and alternative macroeconomic shocks. Our findings highlight the importance of higher-order dynamics for business cycle theories.