responses and variance decompositions are evaluated at the forecast horizons of 2, 4, 6, and 8 quarters (Table 1). Quarterly data from 1991Q1-2015Q3 are used in the estimation.

- **Estimating weights for dispersion** _._ The weight assigned to each risk factor is here estimated as the share of the global growth forecast error variance explained by each of the risk factors (Table 1). The variance decomposition is derived from a recursive identification based on the assumption that oil prices are mostly driven by supply factors as in the spillover analysis of World Bank (2016a). The ordering of the variables used in the Cholesky decomposition is as follows: global term spread, S&P500, oil prices, and global growth. The derived dispersion of the forecast error distribution is scaled to match the mean square root of past forecast errors since 2010.

- **Estimating weights for skewness** _._ The weight assigned to each risk factor in the estimation of global growth skewness is estimated using the impulse responses of global growth at the forecast horizons of interest (2, 4, 6, and 18 quarters) from the same VAR (Table 2). The Cholesky ordering is the same as for the estimation of weights for dispersion.

As a result, each of these recovered statistics characterizing the shape of the global growth forecast distribution is time-varying, reflecting shifts in the distribution of the underlying risk factors.

# **4. Balance of risks to global growth**

The resulting fan chart shows confidence intervals at 50, 80 and 90 percent probability around the growth projections in the June 2016 _Global Economic Prospects_ (Figure 2). The fan chart uses information available up to May 2016. It illustrates that the uncertainty surrounding global growth forecasts has risen marginally above the long-term average and is increasingly tilted to the downside.

The period around the global financial crisis in late 2008– early 2009 illustrates the risks captured in the fan chart. After sharp corrections in most asset prices (financial, housing, or commodities), the balance of risks may have been on the upside. However, this bias was negligible compared to the record-high uncertainty that opened up.

Uncertainty about growth forecasts for 2016 and 2017 is estimated to be near the historical median but has increased since early January 2016, especially for 2017. This reflects heightened volatility in oil prices, term spreads and equity prices since the start of 2016. That said, forecast uncertainty remains significantly below levels observed during the Euro Area crisis in late 2011, let alone the global financial crisis of 2008-09. The balance of risks is tilting increasingly to the downside for 2016. Rising downside risks reflect, especially, growth concerns captured in falling equity price futures.

Compared to the January 2016 projection, upside risks to the baseline forecast have decreased, with equity markets suggesting a lower probability of strengthening growth. For 2017, risks may be turning more balanced. Downside risks to oil prices could boost global growth in 2017 and expectations for rising term spreads may signal receding recession risks. Similarly, a sharp 8