While conditional forecasting has become prevalent both in the academic literature and in practice (e.g., bank stress … testing, scenario forecasting), its applications typically focus on continuous variables. In this paper, we merge elements … from the literature on the construction and implementation of conditional forecasts with the literature on forecasting …

forecasting exercise show that the four approaches considered perform equally well and produce highly correlated forecasts …, meaning that non-pervasive shocks are of no helps in forecasting. We conclude that comovements captured by factor models are …

, including statistical misspecification, non-identification of deep parameters, substantive inadequacy, weak forecasting …