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Accounting for Macrofinancial Fluctuations and Turbulence

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  • Mr. Francis Vitek

Abstract

This paper investigates the sources of macrofinancial fluctuations and turbulence within the framework of an approximate linear dynamic stochastic general equilibrium model of the world economy, augmented with structural shocks exhibiting potentially asymmetric generalized autoregressive conditional heteroskedasticity. Very strong evidence of asymmetric autoregressive conditional heteroskedasticity is found, providing a basis for jointly decomposing the levels and volatilities of key macrofinancial variables into time varying contributions from sets of shocks. Risk premia shocks are estimated to contribute disproportionately to cyclical output fluctuations and turbulence during swings in financial conditions, across the fifteen largest national economies in the world.

Suggested Citation

  • Mr. Francis Vitek, 2018. "Accounting for Macrofinancial Fluctuations and Turbulence," IMF Working Papers 2018/238, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2018/238
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    References listed on IDEAS

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